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Apr 23, 2009
- Restructuring Plans for the Shipping Industry
- 1. BackgroundIn recent years, shipping companies have continuously grown in size* driven by drastic rise in freight rates (Baltic Exchange Dry Index (BDI)).Starting from the end of last year, the business environments have gotten drastically worsened with sudden freefall of freight rates. Consequently, many had to curtail their operations and some became insolvent.For instance, Samsun Logics, the 9th biggest in terms of asset size, filed for petition for a rehabilitation program in February.Although the freight rates have gone up a bit lately, up to 2,084 by March 4, due to prevalent oversupply, a recovery in full scale is deemed difficult.As such, there has been some concern about increasing insolvency among shipping companies as it might burden other related industries, especially shipbuilding or financial companies. Furthermore, their insolvency can be easily spread over to the overall shipping industry because of the complex, multi-layered chartering contracts.Most certainly, if the number of chartering contract cancellation continues to increase, then shipbuilding and financial companies will inevitably face the risk. Therefore, the following restructuring plans, which are to be carried out on a day-to-day, ongoing basis, will help contain increasing insolvency in the shipping industry and to revamp the industry so as to strengthen its competitiveness in the global market.2. Restructuring PlansA. Continuous restructuring of shipping companiesIn line with the existing corporate restructuring procedures* supported by the Corporate Restructuring Promotion Act, creditor banks will conduct credit risk assessment of subject shipping companies on an ongoing basis.*Already, companies whose total loans amount to KRW 50 billion or more are subject to annual mandatory credit risk assessment, due June every year, by their creditor banks.To facilitate the restructuring process, creditor banks will be advised to complete risk assessments by early May this year for shipping c
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Apr 09, 2009
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Apr 09, 2009
- Promotion of Government Bond ETFs
- As a follow up step to the Financial Investment Services Capital Markets Act launched in February this year, the Financial Services Commission has issued an initiative to promote Exchange Trade Funds, or ETFs, by allowing a broader scope of investment; currently, only equity-linked ETFs are being traded in the Korean market. Under the new initiative, a diversified array of products will be traded as in other advanced markets such as the U.S. and the E.U.: i.e. ETFs linked to bonds, commodities, gold and crude oil ETFs, inverse ETFs, leveraged ETF, etc., trading of which will be based on trading prices or index.For the government bond linked ETFs, the FSC will revise current regulations to adjust the required number of principle assets from minimum 10 items to 3 items.The FSC believes that such market-friendly steps will result in favorable market response particularly among small private investors and foreign investors, encouraging their active partaking in the government bond trading. This is expected to have positive impacts on the market by stimulating the government bond issuance and the overall trading markets.For the successful launch of new ETFs, the FSC will also revise ‘Financial Investment Act’ and ‘IPO Operation Code ’ of the Korea Stock Exchange by May or June this year.* Please refer to the attached PDF for details.
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Apr 08, 2009
- Pre-Workout Program
- The Credit Counseling and Recovery Service (CCRS) is a nonprofit corporation aiming to support debtors in financial difficulties and regulated by the Financial Services Commission.Starting on April 13 for a limited duration of one year, the CCRS and creditor institutions will run a “Pre-Workout Program” in support of individual borrowers who are delinquent for a short term between one and three months. This plan was first announced in March 10 this year.The main objective of this initiative is to take preemptive steps against further increase in as well as protraction of household delinquents, posing a threat to hurt asset soundness of creditor financial institutions.To be qualified for the program, there are six criteria which applicants must satisfy, and they include the total debt amount limit by two creditors (under KRW 500 million), delinquency length (between 30 and 90 days), and the ratio of new credit to total existing debts (30% maximum), among others.Meanwhile, to prevent credit delinquents from taking advantage of this program by intentionally putting off repayments, the CCRS and financial institutions will soon unveil additional provisions.For further details, interested users can call (1600-5500) or email CCRC (www.ccrs.or.kr) directly.* Please refer to the attached PDF for details.
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Mar 31, 2009
- The Bank Recapitalization Fund - 1st Round Purchase
- On March 31, the Bank Recapitalization Fund Oversight Committee announced that the first round of bond purchase was completed. The total amount of purchase completed, both hybrid and subordinated bonds issued by 8 financial institutions, is KRW3.956 trillion out of the total ceiling amount, KRW 12.3 trillion, set for the first round of support- Hybrid Bonds: KRW 3,453 billion- Subordinated Bonds: KWR 503 billionAdditional bonds from applying banks will be purchased according to their access limit. An MoU is to be signed between the government and each participating bank in order toensure each bank’s full commitment to providing active support to the real economic sectors while prescribing against the government’s management intervention.The government will conduct follow up monitoring for all participating banks as to their commitment to supporting the economy, regardless to their actual use of the Fund.Meanwhile, in order to prevent the Fund from being concentrated in one particular industry, the Fund Oversight Committee will set an industry-based quota for the support from the participating banks.To those banks deemed lagging behind their MoU commitment to supporting the real economic sectors, punitive measures will be applied on the next round of bond purchase such as limiting the amount of purchase, lowering their total access limit, and raising applicable interest rates.* Please refer to the attached PDF for details.
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Mar 30, 2009
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Mar 27, 2009
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Mar 20, 2009
- Bank Recapitalization Fund's Execution Blueprint
- The Bank Recapitalization Fund Oversight Committee has unveiled its third blueprint as to the basic guidelines for the first round of purchasing banks’ hybrid bonds and subordinate bonds scheduled at the end of March. The purchasing criteria will be determined based on the current and past interest rates, and the interest spread for those bonds.Also, the government evaluated the progress banks have made based on the Fund’s policy objectives and the progress of subject banks’ implementation of their MOU commitment, prerequisite to the government guarantee on their external debts.As for regional banks, to account for the considerable discrepancy in thier credit ratings as opposed to nation-wide banks, 30bp difference will be assumed.The Korea Exchange Bank has informed the FSC that it would not use its credit line for issuing hybrid bonds but would go ahead as planned with issuing subordinate bonds (KRW 250 billion).The first round of bond purchasing will be implemented at the end of March after receiving banks’ application to sell their bonds during the month.Based on the result of the market survey, it is expected that the first round will total approximately KRW 3.8 trillion for hybrid bonds and KRW 0.5 trillion for subordinate bonds.The fund will be operated via a “matching” method in which the fund amount will be set to match the amount in demand in accordance with the needs in supporting the real economic sectors, corporate restructuring, and foreign currency markets.By monitoring the progress the participating banks have made with their implementation of the MoU, those who have inadequately served their commitment to supporting the real economic sectors and other preconditions to the Fund, several countermeasures could be applied to them such as limiting their access amount and raising applicable interest rates.* Please refer to the attached PDF for details.
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Mar 18, 2009
- FSC Meets the Press and Investors in London
- Headed by the Vice Chairman, Dr. Rhee Chang Yong, the FSC delegates met with representatives from major British media and financial institutions in London on Friday, March 13, 2009.ParticipantsPress: The Economist, the Financial Times, Reuters, BBCFinancial Institutions: HSBC, Barclays Capital, Standard Chartered, Duetsche BankThe main mission of the seminar was, before the impending G-20 Summit meeting in London, to update its local press and financial communities on Korea’s current economic and financial positions by providing detailed data.This has provided opportunities to set up communication channel with influential media such as BBC, the Economist, the Financial Times, and Reuters.For clear communication on Korean economy and financial markets, the FSC has set up bi-weekly teleconferences with the media and foreign investors, and this fact was also delivered at the meetings. Key Points DiscussedThe FSC addressed major issues raised by the media and investors: foreign debt, liquidity in foreign currency, mortgage loans, impact of Eastern European market risks on Korea, and business prospects for Korean shipbuilding companies.The FSC delegates stressed the importance for advanced economies to stand firmly by the Free-Market Principles not regressing to trade protectionism. Also was emphasized the need for G-20 countries to have a portion of massive liquidity injection accessible to emerging market countries.Regarding Fitch’s Stress Test results, the FSC expressed its regret on behalf of the Korean government and bank industry, that the results based on extreme speculation on the banking sector were actually reported by the press.The FSC engaged in talks with the Bank of England and financial experts regarding policy efforts in both jurisdictions for crisis management.The FSC called for wider and fairer coverage of Korean economy, which is often surmised in a package with emerging economies in the Asian region.A view was shared among the participants that th
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Mar 13, 2009
- Preemptive Initiatives to Safeguard the Soundness of Financial Instituitions
- 1. BackgroundAmid deteriorating financial climate in the global economy, much uncertainty in global financial markets has also escalated. Thus, the Korean economy is likely to suffer a prolonged recession, potentially triggering an economic vicious circle starting with corporate and house-hold loan defaults which may hurt the financial sector’s soundness and weaken their lending and overall financial intermediary functions, consequently exacerbating the overall economic basis.Meanwhile, major economies are in the process of preparing or already implementing preemptive measures to support their financial industries by cleaning up non-performing loans and recapitalizing so as to strengthen its intermediary role of supporting the real economic sectors.Notwithstanding Korea’s economy’s relatively strong position, in order to be better prepared for potential risks in case of further deterioration of global market conditions, the government has decided to take preemptive initiatives to strengthen financial institutions’ intermediary functions and to eliminate any potential sources for systemic risks.To do so, early resolution of NPLs in the financial industry has to be preceded to help ascertain its overall soundness. For this, the government already announced its plan to set up a Restructuring Fund under KAMCO in February. On March 13, the government unveils its additional plan to enhance existing regulations to facilitate the government’s rendering greater support to financial institutions in need of further recapitalization. Improved regulations will also allow for launching a government-guaranteed KAMCO bonds in the total amount of KRW 40 trillion. The bills proposing these initiatives will be submitted to the National Assembly in April.Under these new initiatives, financial institutions’ soundness will greatly improve and their ability to shore up real economic sectors will also be strengthened.For the same purpose, the Bank Recapitalization Fund has alre
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Mar 13, 2009
- Fitch Ratings' Stress Test
- 1. Summary of Fitch Ratings’stress test on Korean banksGlobal credit rating agency, Fitch Ratings, announced the results of its stress test on Korean banks on Thursday, March 12th at around 22:00 (Seoul time).A summary of the stress test results is as follows:Under a stress scenario during the period from June 2008 through December 2010, Korean banks would see a decline in capitalization totaling KRW 42 trillion due to credit costs, losses on equity and debt securities holdings and asset growth through the inflation of foreign currency assets given the depreciation of the Korean won in the past year.The banks’ combined equity-to-assets ratio would decline from 6.4 percent in June 2008 to 4.0 percent in December 2010.The KRW 42 trillion reduction in capitalization would require additional capital raisings by the banks, and such capital may have to come from the government. The government’s current KRW 20 trillion Bank Recapitalization Fund may not be sufficient, particularly to the extent it is used to buy subordinated debt and lower quality hybrid debt from the banks.2. Government’s response to the stress test resultsA. The results of the stress test are based on variables and assumptions (e.g. estimated loss rates on bonds and securities), which can be easily altered by future economic events. Therefore, the government finds it inappropriate for Fitch to release such speculative results on Korean banks when this could adversely impact their international credibility and financial soundness.B. Even if the worst possible scenario were to be materialized, in which the expected loss of 42 trillion won were to be taken into account and no new recapitalization were to be assumed, the tangible common equity (TCE) ratio of Korean banks would be 4.0 percent as of the end of 2010, which would be still higher than the current TCE ratios of major leading banks worldwide. The Bank for International Settlements (BIS) ratio would be 8.7 percent, still higher than th
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Mar 06, 2009
- FSC Article Published in AWSJ
- By Rhee ChangyoungSEOUL—South Korea, like all other advanced economies, has inevitably been affected by the financial-market turmoil seeping the globe. Yet the precise nature of these effects on our economy has too often been misunderstood. Some commentators claim that Korea is facing another major financial crisis similar to what it experienced during the Asian financial crisis. This is untrue, and it is important to set the record straight.The Korean economy is often inaccurately characterized as weak because of its external debt. It is true that Korea’s total external debt up for repayment within 2009 is $194 billion. But $39 billion of that amount is considered non-obligatory debt, such as foreign-exchange hedging and advanced payment receipts for ship orders that will clear off the books when the ships are delivered. Korea’s net external debt totals $155 billion, or 77% of Korea’s foreign reserves of $201.5 billion as of last month. The current roll-over ratio of foreign debt as of February is over 91%. Inother words, our banks and corporations are experiencing no problems repaying or refinancing their debts. Looking at the banking sector alone, out of total external debt of $171.7 billion as of the end of 2008, debt held by branches of foreign banks accounts for $72.3 billion, which does not affect the solvency of domestic banks. The actual amount of external debt held by domestic banks as of the end of 2008 is $99.4 billion—only half of Korea’s foreign reserves.Nonetheless, some market commentators have openly expressed their pessimism. Perhaps such pessimism might be traced back to Korea’s 1997 crisis and the fear that it may be repeated. Such a possibility, however, is slim. The Korean economy today is very different from what it was a decade ago.First, the corporate sector whose debts helped trigger the Asian financial crisis in Korea has been transformed, and is now sound and transparent. The ratio of corporate debt to equity, for instance,
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Mar 05, 2009
- Restructuring of Shipping Companies
- 1. BackgroundIn recent years, shipping companies have continuously grown in size* driven by drastic rise in freight rates (Baltic Exchange Dry Index (BDI)).Starting from the end of last year, the business environments have gotten drastically worsened with sudden freefall of freight rates. Consequently, many had to curtail their operations and some became insolvent.For instance, Samsun Logics, the 9th biggest in terms of asset size, filed for petition for a rehabilitation program in February.Although the freight rates have gone up a bit lately, up to 2,084 by March 4, due to prevalent oversupply, a recovery in full scale is deemed difficult.As such, there has been some concern about increasing insolvency among shipping companies as it might burden other related industries, especially shipbuilding or financial companies. Furthermore, their insolvency can be easily spread over to the overall shipping industry because of the complex, multi-layered chartering contracts.Most certainly, if the number of chartering contract cancellation continues to increase, then shipbuilding and financial companies will inevitably face the risk. Therefore, the following restructuring plans, which are to be carried out on a day-to-day, ongoing basis, will help contain increasing insolvency in the shipping industry and to revamp the industry so as to strengthen its competitiveness in the global market.2. Restructuring PlansA. Continuous restructuring of shipping companiesIn line with the existing corporate restructuring procedures* supported by the Corporate Restructuring Promotion Act, creditor banks will conduct credit risk assessment of subject shipping companies on an ongoing basis.*Already, companies whose total loans amount to KRW 50 billion or more are subject to annual mandatory credit risk assessment, due June every year, by their creditor banks.To facilitate the restructuring process, creditor banks will be advised to complete risk assessments by early May this year for shipping c
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Feb 27, 2009
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Feb 27, 2009
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Feb 25, 2009
- Bank Recapitalization Fund Formation and Operation
- Amid global economic crisis, banks need to take more aggressive roles in supporting real economic sectors and corporate restructuring in a concerted effort to overcome the financial turmoil without hurting Korea’s economic growth potentials.From this perspective, since the beginning of the second half of last year, the government has been raising the issue of launching the Bank Recapitalization Fund as a way to boost banks’ funding and loss bearing capacities.In its report to the President on the annual work plan, the Financial Services Commission announced its plan to form the Fund so as to enable banks to take upon the leading role in shoring up real economic sectors and the on-going restructuring programs.To maximize the effect of the Fund, the government has encouraged banks to provide their feedback on the plan, and based on the ideas gathered thus far, following detailed plans have been finalized.I. Progress in the formation of the FundIn December 2008, the government announced the plan to set up Bank Recapitalization Fund in the amount of 20 trillion won.On February 15, 2009, banks’ CEOs and the regulators met and ran a joint workshop regarding the plan as to ways of making best use of the Fund in providing liquidity to the real economic sectors and their restructuring. General consensus has been reached that banks will be able access the Fund within their credit limits, and banks are free to decide on how to use the funds.Commercial banks, holding companies as well as Industrial Bank of Korea, NACF, and NFFC can apply for the fund.Some recommended usage:a. In support of real economic sectors: by extending new credit lines or roll-overs to SMEs, funding to credit guarantee schemesb. In support of corporate restructuring programs: new credit extension to or funding for the debt-to-equity swap of companies under workout programs, capital injection to the Corporate Restructuring Fund (KAMCO)c. In support of PFs or NPL write-offsOn February 25, 2009 at the
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Feb 24, 2009
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Feb 19, 2009
- Corporate Restructuring Strategic Directions
- Amid the global financial crisis, with acute awareness of the importance to revamp the overall economic structures in an effort to prevent spread of financial defaults in the markets, the Korean government has decided to pursue quick and effective restructuring measures.The market environment of current crisis, however, is different from that of the 1997 Asian crisis in that there are no major defaults realized in the market, and this makes it more difficult for the government to push forward with one time, full-fledged corporate restructuring as back then.Also, as the global economy has uniformly entered a drastic downturn, the expected efficacy of corporate restructuring progrmas especially in eliminating market uncertainty appears rather limited.With such understanding, the Korean government has built the consensus for the importance of taking clear stances and establishing firm principles in pursuing corporate restructuring in order to maximize the change of its successful outcome.Accordingly, the officials from relevant ministries worked jointly to draft restructuring strategic directions and key action plans, and they were finalized on February 19, 2009 through the discussions at the Presidential Economic Crisis Management Committee meeting.* Please refer to the attached PDF for details.
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Feb 18, 2009
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Feb 16, 2009
