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Nov 03, 2000
- Creditor Banks Announce Results of Credit Risk Assessments of Potentially Non-viable Corporations
- On November 3, 2000, Hanvit Bank and 20 other creditor banks announced the results of their credit risk assessments of 287 potentially non-viable corporations. Based on these evaluations, companies deemed viable will be eligible for additional financial support while those deemed non-viable may face immediate liquidation.The 21 creditor banks conducted credit risk assessments of the 287 potentially non-viable corporations, which include those with over 50 billion won in outstanding extended credits, from October 5, 2000 to November 3, 2000. The assessments considered industrial risk, operational risk and financial risk, and each creditor bank established its own assessment criteria and Credit Risk Assessment Committee (CRAC) to conduct the evaluation. Each CRAC was comprised of around 10 members, and included outside experts to ensure the fairness and objectivity of the assessment. The Credit Risk Assessment Coordination Group, which was made up of representatives from each of the creditor banks, mediated discrepancies that arose among the banks and made a final decision on the viability of concerned corporations.According to the results of the credit risk assessments, creditor banks will prepare detailed financial support programs for the 69 companies assessed as having structural problems but deemed viable with additional financial aid from their respective creditor banks.However, if a company that was previously classified as a normal or viable company in the credit risk assessment faces a new liquidity crisis, creditor banks must take responsibility for their failure to properly assess the company’s viability and exposure to risk.With their announcement of the results of credit risk assessments of potentially non-viable companies, creditor banks expect to strengthen the transparency and stability of financial markets, and to regain investor confidence. Looking ahead, the creditor banks will assess the credit risks of their respective client companies on a quar
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Oct 05, 2000
- Potentially Non-viable Corporation Subject to Credit-risk Assessments
- In line with the second phase of financial sector restructuring, the Financial Supervisory Service (FSS) announced that creditor financial institutions will assess the credit risks of potentially non-viable companies, and manage them accordingly. The action is expected to place the long-deferred resolution of ailing companies back on the right track and help restore stability in Korean financial markets by promptly resolving non-viable companies experiencing critical problems such as a liquidity shortage.Companies with outstanding extended credit of 50 billion won or more as of July 31, 2000, will be initially examined. Among these companies, those that fall into one of the following categories will be subject to credit risk assessment: 1) Companies to which loans previously extended are now classified as “precautionary” or lower under FLC evaluation; 2) Companies that have recorded interest coverage ratio of less than 1 for three consecutive years. For those firms that are deemed potentially non-viable under each banks’ specific regulations and guidelines, the creditor banks will determine, regardless of the amount of outstanding extended credit, whether or not to conduct credit risk assessment.A Credit Risk Assessment Committee (CRAC) will be established at each creditor bank in October and will conduct risk assessment under its own guidelines. These guidelines, however, should comprehensively reflect qualitative factors such as industry risk, business risk, management risk, financial risk, and future cash flows. The Committee will be comprised of around 10 members, and should include outside experts while excluding any members who may present a conflict of interest or hold undue influence over the credit decision.From November, creditor banks will group the companies subject to risk assessment into three categories: Companies with normal operation, companies with temporary liquidity problems, and companies with severe liquidity problems. For the first two g
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Oct 05, 2000
- Total Bad Loans in Financial Sector Decrease in 2nd Quarter
- As of end-June 2000, the total amount of loans classified as “ substandard” and below at all domestic financial institutions stood at 82.5 trillion won, which represent s a decrease of 7.9 trillion won from 90.4 trillion won recorded as of end-March 2000.Net substandard and below loans, which are substandard and below loans minus loan loss provisions, also fell to 44.0 trillion won. Accordingly, the ratio of substandard and below to total loans was reduced to 13.6 percent, which is down 1.7 percentage points from end-March 2000. Non-performing loans totaled some 60.9 trillion won, down 3.2 trillion won from end-March 2000, and accounted for 10 percent of total loans.At banks, merchant banks, and merchant banking accounts in securities firms, the loans graded as substandard or below include those classified as “ Substandard” , “ Doubtful” , and “ Estimated Loss” according to the Forward Looking Criteria (FLC), which reflect all potential losses in the loans. For other financial institutions, substandard and below loans refer to non-performing loans, which includes all loans overdue for more than three months and non-accrual loans.Continuing sales and write-offs of bad loans were the main reasons for the decrease. During the period, domestic financial institutions disposed of 3.3 trillion won worth of bad loans through issuance of asset backed securities (ABS). In addition, they also had 3.3 trillion won worth of bad loans written off.Banks accounted for 56.5 trillion won, or 68.5 percent, of total substandard and below loans in the domestic financial sector. Non-bank financial institutions followed with 16.5 trillion won, or 20.0 percent. Insurance companies and securities firms accounted for 5.4 trillion won and 4.1 trillion won, respectively.As noted, substandard and below loans in the domestic financial sector were down as of end-June 2000 from end-March 2000. The greatest reduction in bad loans, however, was seen in the banking sector. Overall, ba
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Sep 25, 2000
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Sep 06, 2000
- FSS to Hold Inaugural Meeting of International Advisory Board(IAB) on September 25-26, 2000
- On September 25-26, 2000, the FSS will hold the inaugural meeting of the International Advisory Board (IAB) in Seoul. Jointly sponsored by the FSS and the World Bank, the IAB is a panel of thirteen distinguished economic and financial experts who will advise the FSS and Korean government on major financial policy, reform and regulatory issues.The main objective and purpose of the IAB will be to provide advice to the FSS regarding policy issues on the development of a financial services sector that best serves the needs of the Korean market and consumers in the 21st century. The IAB will also assist the FSS in the implementation of a sounder regulatory framework and stronger financial architecture, and will provide advice concerning financial sector issues that are consistent with a long-term vision and with introducing international best practices at both public and private sector institutions. A primary focus of the IAB will therefore be to advise the FSS on strengthening regulatory and supervisory functions in the most highly efficient and effective manner. The IAB will also provide recommendations to the FSS, based on previous experience, on a case-by-case basis for issues that require urgent corrective action.The IAB is composed of thirteen renowned experts from varying backgrounds in finance and economy, including financial regulation, banking, capital markets, insurance, and macroeconomics. At the inaugural meeting, the IAB members will each deliver individual presentations on specific topics related to the current status and future prospects of the Korean financial market and industry. (Refer to Appendix for IAB Member List)Through the establishment of IAB, the FSS expects to reap the following benefits: • Visions and strategies for the development of sound financial industry in Korea• Enhanced compatibility of financial supervisory policies with international standards• Improved communication with international supervisory agencies and authorities •
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Jul 14, 2000
- Policy Direction for Development and Reform in the Financial Industry
- At the Tripartite Commission meeting on July 12, FSC Chairman Yong-Keun Lee, who is also a special member of Tripartite Commission, reported “Policy Direction for Development and Reform in the Financial Industry.” The policy direction was based on the government’s view on the request of the Korea Financial Industry Union (KFIU) regarding financial reform. The details are as follows; 1. Basic directions for financial policy • The items below will be declared and enacted as an order of the Prime Minister or a decision of the Cabinet Council: i. Remaining unnecessary or excessive legal regulations that restrict the managerial independence of banks will be abrogated in line with ongoing renovations of the regulatory framework in the nearest future.ii. Management transparency and responsible management of banks will be guaranteed through the prohibition of outside interference, special favors and undue pressure, while the board of directors at banks in which the government is the majority shareholder will assume responsibility for all major managerial decisions.iii. Decision-making or enforcement of government policies aimed at stabilizing financial markets will be undertaken through clear and transparent manner and procedures, such as documentation in order to avoid any suspicion or misunderstanding.2. On the continuous promotion of financial reforms• The second stage of financial sector reform and restructuring, which is aimed at enhancing the global competitiveness of domestic financial institutions, will be promoted and based upon the following principles:i. Financial reform will be pursued and promoted based strictly on market principles.ii. The government will actively provide support for financial reform, including the introduction of the financial holding company system, continuing reform of the financial market infrastructure, preferential treatment in granting licenses, and purchases of subordinated bonds (from financial institutions requiring additio
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Jul 07, 2000
- Completion of Asset Clean-up of ITC Trust Funds (With Attachment)
- This press release is to clarify the completion of clean-up efforts regarding trust funds at domestic Investment Trust Companies (ITCs), Investment Trust Management Companies (ITMCs), and merchant banks. With implementation of the mark-to-market evaluation system for bonds, all ITCs, ITMCs and merchant banks are required to reveal bad assets, mainly bad bonds, in trust funds. Furthermore, bad assets must be duly assessed and written off in order to regain investor confidence by enhancing transparency in fund asset management. As a result, all trust funds at ITCs were evaluated and audited by outside experts as of June 30, 2000. According to the results of the evaluation and audit, all of the funds have been completely cleaned of bad assets and their current financial status has been accurately reported.The total amount of bad assets held by ITCs was estimated at 7.1 trillion won as of the end of January 2000. Of this total, it was estimated that 3.1 trillion won was to be written off or assumed as losses. As of the end June 2000, however, potential losses amounted only to 0.9 trillion won as 2.2 trillion won had already been written off. Potential losses refer to bad assets that should be recognized as losses but are not realized through write-offs. In fact, three different methods were utilized to clean up bad assets in ITC trust funds as of the end of June 2000: the write-offs of bad assets from trust accounts, transfer to sales units, i.e. securities companies, in light of burden sharing, and the securitization of bad assets through the issuance of Collateralized Bond Obligations (CBOs). As such, total bad assets were assessed from three different sources. 2.3 trillion won was held in the ITCs’ trust accounts, 0.4 trillion won was recognized as it originated from ITCs although transferred to sales units, and 4.4 trillion won arose from buying back subordinate class CBOs. First, ITCs subsequently wrote-off 1.2 trillion won, or 53.5%, of the 2.3 trillion won held
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Jul 03, 2000
- Commercial Banks Disclose Potential Losses
- On June 30, 2000, Korean commercial banks disclosed potential losses in their assets in accordance with the stricter disclosure rules of the forward looking criteria (FLC). Potential losses refer to losses that would additionally be incurred following the application of the FLC to all borrowers. As of end-March 2000, potential losses amounted to 3.9 trillion won, including those newly accrued through the end of June. In addition, commercial banks will be required to transform into “clean banks” through the swift resolution of impaired assets and reinforcement of capital bases.In this regard, the FSS announced policy measures to enhance the transparency of bank management. Under the new measures, potential losses will be reflected in banks’ income statements within the time framework agreed to with the IMF in order to promote investor confidence and to expedite completion of management normalization efforts at commercial banks. Additional injections of public funds will also be considered if deemed necessary and under the strict condition of more vigorous self-rescue efforts in place.BackgroundThe FSS introduced the FLC as the new standards for asset classification effective from December 31, 1999, in order to fully incorporate a borrowers’ capacity to repay loans. However, investor confidence has not been restored to the targeted level due mainly to market perceptions that banks remain vulnerable to unrevealed potential losses. In fact, impaired assets related to companies currently under workout programs have been given preferential treatment in the course of pursuing corporate sector restructuring. Loans extended to companies under workout programs were classified as either “precautionary” or “substandard” and are required a minimum 2 to 20 percent loan loss provisioning. Also, the FLC was not able to account for potential losses in companies under court receivership and court mediation procedures as well as losses resulting from holding secured CP
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Jul 01, 2000
- Clean-up of Bad Assets in Trust Funds of ITCs, ITMCs Completed
- With the implementation of the mark-to-market evaluation system for bonds, ITCs and ITMCs are required to reveal bad assets, mainly bad bonds, in trust funds. Furthermore, the bad assets were required to be fairly evaluated and written off in order to regain investor confidence by enhancing transparency in fund asset management. As a result, all funds at ITCs, ITMCs and merchant banks were evaluated and audited by outside experts as of June 30, 2000. According to the evaluation and audit results, all of the funds have been completely cleaned of bad assets and their financial status have been fairly stated.ITCs and ITMCs transferred bad assets from trust accounts to their own accounts and issued Collateralized Bond Obligations (CBOs), thereby sharing a major portion of the losses stemming from bad assets between IT(M)Cs and fund selling agencies. In addition, ITCs and ITMCs wrote off 1.2 trillion won of bad assets in the funds. According to the evaluation, bad assets in trust accounts totaled 2.3 trillion won and total losses were estimated at 1.2 trillion won, or 53.5 percent. The remaining 1.1 trillion won, which represents 0.8 percent of total assets in trust accounts, is expected to be collected from debtors. Bad assets were written off at ratio set under strict criteria in order to be fully account for. Write-offs were made for both Bankrupted bonds and Quasi-bankrupted Bonds, which are bonds that did not go into bankruptcy yet but were deemed so by the government. Bankrupted Bonds were written off at a ratio of above 50 percent, and Quasi-Bankrupted Bonds at a ratio of above 20 percent. Despite write-offs, fund yields were not affected, remaining at around 8 percent per annum. Funds under the mark-to-market evaluation system recorded higher yields than the funds under the book value evaluation system. In order to enhance transparency in fund management, the results of fund management such as yields on securities, amount of bad assets and write-off ratios will b
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Nov 30, 1999
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Nov 17, 1999
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Nov 04, 1999
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Sep 17, 1999
- Terms of Investment Signed for the Sale of Korea First Bank
- The Korean Government and Newbridge Capital Ltd., a U.S. investment firm, reached an agreement on the detailed terms of the transaction of Korea First Bank on September 17, 1999. This Terms of Investment is the binding agreement on major terms and conditions which will be the basis for the definite contract. They had exchanged memoranda of understanding on December 31, 1998. Both parties have expressed their interest in concluding the final contract as soon as possible.The major terms agreed are that Newbridge Capital will invest KRW 500 billion to acquire 51 percent of the shares in Korea First Bank, which are held by the Government, on the condition that the bank shareholders’ equity will be maintained at least at a level equivalent to both 3 percent of total assets and the capital required to meet BIS capital ratio of 10 percent. Newbridge Capital would also invest up to an additional KRW 200 billion in the next 2 years, subject to progress in the management rehabilitation of the bank.As premium for management rights, the Government will have a warrant exercisable on 5 percent of the total shares of the bank after 3 years, which would enable its participation in the future upside potential of the bank to any extent possible. In the meantime, the bank will be protected against losses arising from a deterioration of the existing loans in two ways. First, the Government would purchase the loans should they default during the next 2 years, or 3 years in the case of workout loans, from the closing. Second, the Government would provide the bank with additional reserves for loan losses, which may be incurred from any asset quality deterioration.Throughout the negotiation process, the Government placed an emphasis on the need to preserve the bank’s post-sale operational base and facilitate financial support for the existing corporate customers. Especially in this regard, all loans will be retained by the bank except for non-performing loans as classified according to
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Sep 03, 1999
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Aug 25, 1999
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Jun 30, 1999
- Launch of Korea Accounting Institute(KAI)
- In an effort to enhance credibility and transparency in accounting and corporate environment, the Korean government made an agreement with the IBRD in October 1998, to establish a private-sector accounting standard setting organization.In order to devise a plan for an efficient and most appropriate organizational structure under Korean climate, the Financial Supervisory Commission (FSC) formed a steering committee including KICPA and other related institutions.On June 30, 1999, the inaugural meeting of 13 member institutions was held at the KICPA conference hall to officially launch the organization, named as the Korea Accounting Standards Institute (KASI).In addition to the approval of the articles of incorporation in the meeting, inaugural member institutions appointed the president, board of directors, and a standing board member of the Korea Accounting Standards Board (KASB).After the approval by the FSC, facility arrangement, and personnel recruiting, the KASI is expected to be fully operational soon.* Please refer to the attached file for details.
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Jun 28, 1999
- Action on Management Rehabilitation of Korea First Bank
- Based on the resolution passed by the Financial Supervisory Commission (“FSC”) on June 25, 1999, the Government has determined Korea First Bank (“KFB”) to be insolvent in accordance with Section 2(3) of the Act Concerning the Structural Improvement of the Financial Industry. From this decision, the Government has also issued an order for capital reduction and made a request for fund support to the Korea Deposit Insurance Corporation (“KDIC”).Following the difficulties in management KFB experienced in its credit relations with Hanbo and Kia during 1997, the Government decided to provide support with public funds in January 1998. However, with the corporate and financial sector restructuring on their way, KFB’s financial conditions further deteriorated by the increases in non-performing loans (NPLs), which resulted from the strengthened asset classification standards, corporate bankruptcies, and the losses incurred from resolving NPLs.Furthermore, with binding constraints on its making loans and securities investment, KFB is currently unable to carry out its normal operation without any recapitalization support from outside.There are a number of considerations for the forthcoming injection of public funds into KFB for its management rehabilitation prior to its sale. In the absence of any provision for its management rehabilitation, KFB is certain to face difficulties in retaining its customers, including its corporate clients, and maintaining its operational basis.Further, since a delay in rehabilitating its management could entail a more significant amount of public funds, a prompt action had to be taken. In addition, management rehabilitation of KFB is a measure which would have had to be taken to resolve its bad assets, notwithstanding its sale overseas. Thus, it is timely and appropriate as a measure to prevent any further deterioration of its financial conditions and facilitate the negotiation of its sale. In order to maximize the valuation of KFB a
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Apr 21, 1999
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Apr 20, 1999
- Disclosure of Korean Bank`s Management Improvement Plans
- The Financial Supervisory Service (FSS) will require Korean banks that have been placed under prompt corrective action measures to disclose details of their management improvement plans on their internet website. The recent measure aims at making related information readily available to varying stake holders and enhancing management accountability at the banks.Although ideally the content of plans should be disclosed in its entirety, those that are seen to be inappropriate to be made public out of concerns of any adverse effects may take a more abbreviated form. Disclosure items include plans relating to shedding subsidiaries, reducing nonperforming loans and downsizing of staff and business activities, along with management performance targets, management strategies, governance structure, macro economic forecasts etc. There are currently ten banks that are placed under prompt corrective action measures ; Hanvit, Cho Hung, Korea Exchange, Korea First, Seoul, Peace, Pusan, Kyongnam, Cheju, Kangwon.* Please refer to the attached file for details.
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Mar 05, 1999
- Restructuring the Life Insurance Sector
- In a document released on March 5, 1999, the Financial Supervisory Commission laid out the underlying scheme for restructuring the domestic life insurance sector (total assets of 92.3 trillion won as of Dec. 1998). The following summarizes some of the important features.Progress to dateInitial round of restructuring of the life insurance sector carried out in August, 1998 entailed the following measures ;- Business suspension and exit (4 cos.) ; Kukje, BYC, Taeyang, Coryo- Mandatory submission of management improvement implementation plans (7 cos.) ; Josun, Dongah, Kookmin, Hankuk, Handuk, Pacific, Doowon- Mandatory submission of LOI (7 cos.) ; Hanil, Shinhan, Hansung, Daishin, Tongyang, SK, KumhoBased on 1998 year-end results, among the 14 life insurance companies that were subject to management submission of management improvement implementation plans and LOIs, 10 companies were found to not have implemented plans as originally scheduled and were asked to promptly come up with ways to complete implementation (Jan 18 - Feb 18, 1999). It was conluded that a large number of these companies were suffering from huge losses and with deterioration in management performance of recent registered significant shortfall in solvency margin.In February, 1999 due diligence was conducted on 14 companies that were subject to further management improvement and based on these results specific companies to be placed under restructuring schemes were identified.Future TasksWithout the resolution of ailing life insurance companies, problems in the sector will only worsen and require increasingly more public funds. Although voluntary MAs within the domestic market along side takeovers by international buyers are seen as the ideal way to approach the problem, as most of the companies are under severe distress the likelihood of any voluntary consolidation is dismal and thus sell-offs to international buyers will be the main vehicle to be used.The underlying principle for the follow-up stag
