• Some investors are voicing concerns that a prolonged global financial crisis may hamper the soundness and stability of Korean banks. Please elaborate on this.

  • Prudent risk management by the financial authorities has allowed Korean banks to weather the worsened economic climate better than those in many other countries. As of September 2008, key soundness indicators, including the BIS ratio (10.86%), the NPL ratio (0.82%) and the coverage ratio (175.1%), all stood in good shape. In contrast to the losses and bankruptcies experienced by foreign financial institutions, Korean banks are still posting net profits. 14

    < Asset Soundness of Korean Banks >

    Unit: %

    Indicator End 03 End 04 End 05 End 06 End 07 End Mar. 08 End June 08 End Sept 08
    NPL Ratio 2.63 1.90 1.22 0.84 0.78 0.79 0.70 0.82
    SBL Ratio 2.17 1.57 0.97 0.71 0.56 0.68 0.56 0.69
    Delinquency Ratio 1.95 1.71 1.17 0.81 0.70 0.84 0.74 0.89
    Coverage Ratio 84.0 104.5 131.3 173.2 199.1 184.1 197.1 175.1

    Note : At end-Sep. 2008, US commercial banks had an SBL ratio of 2.23% and a delinquency ratio of 3.64%.

    14 From Q1 2008 to Q3 2008, net profits totaled 8.3 trillion won (compared with 15 trillion won in 2007 and 13.6 trillion won in 2006)

    Foreign bank losses: Citi $68.1 billion, Wells Fargo $17.7 billion, RBS $12.7 billion, UBS $44.2 billion, Bank of America $27.4 billion.

    If the global financial crisis raises volatility in exchange rates, equity prices, interest rates and other asset prices, and if this prolongs the global economic slump, there is a real possibility that the BIS ratios of Korean banks will worsen.

    Taking this into account, the financial authorities are implementing various measures, of which the Capital Expansion Fund is one.

    Banks themselves are intensifying restructuring efforts, for instance by issuing equities and hybrid securities, in order to shore up capital and ensure stability.

    15 KAMCO is issuing 400 billion won in equities to purchase bad loans, while authorities are restructuring construction companies as well as small and medium-sized companies in the shipbuilding industry

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