Press Releases - Financial Services Commission

Press Releases

Period: start
~
end

1month 3month Reset

Requirement

Nov 25, 2013

Basel III Regulations To Be Implemented To Domestic Banks From December 2013

Basel III capital regulations will be phased in to domestic banks from December 1, 2013, as part of strengthened prudential regulations for banking sector which have been under discussion since the global financial crisis.KEY CONTENTS1. Minimum capital requirementsThe current capital adequacy ratio for banks is a minimum 8% of their risk-weighted assets (RWAs). Under the Basel III, banks will be required to meet detailed adequacy ratios for each category of capital.From December 2013, banks need to hold at least 3.5% of their risk-weighted assets as common equity capital1, 4.5% as Tier capital, which make their overall minimum capital requirement to 8%.2Changes in Minimum Capital Regulations upon Implementation of Basel III Dec. ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 Minimum Equity Ratio (Total Equity Ratio + Capital Conservation Buffer Ratio 8.0 8.0 8.0 8.625 9.25 9.875 10.5 Total Equity Ratio 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Tier 1 Capital Ratio 4.5 5.5 6.0 6.0 6.0 6.0 6.0 Common Equity Tier 1 Capital Ratio 3.5 4.0 4.5 4.5 4.5 4.5 4.5 Minimum Capital Conservation Buffer Ratio - - - 0.625 1.25 1.875 2.5 2. Qualifying conditions for regulatory capital under Basel IIIUnder the Basel III, banks’ total capital, currently composed of Tier 1 and Tier 2, will be divided into common equity capital, additional Tier 1, and Tier 2 capital. Qualifying conditions for each capital class will be modified to enhance quality of banks’ capital.From December 1, 2013, up to 90% of non-qualifying instruments as contingent capital3 already issued will be recognized as regulatory capital under the Basel III. The percentage will be gradually reduced by 10% points per year.4Types of Capital after Revision of Basel III Capital Regulations Common Equity Capital (A) Equity with priority to be conserved from bank’s loss and last to be redeemed from bank’s liquidation. Equity which is subject to redemption only in case of bank’s liquidation. (e.g. capital, capital surplus accrued from i
Attachment 1
Jul 08, 2013

Measures to Normalize Corporate Bond Market

The FSC announced measures to invigorate the sluggish corporate bond market as a preemptive response to prevent worsening corporate funding condition and destabilizing factors in corporate bond market from spilling over the broader economy.MARKET OVERVIEWCorporate bond issuance has decreased since the beginning of 2013. The market condition has been further deteriorated since May this year as yields for corporate bonds and credit spreads began to rise due to growing concerns about potential tapering of the U.S. Federal Reserve’s quantitative easing. Corporate Bond Issuance Volume (unit: KRW trillion) ’09 ’10 ’11 ’12 ’13 Jan Feb Mar Apr May Jun Net Issuance (monthly average) 34.6 (2.9) 18.1 (1.5) 30.8 (2.6) 32.2 (2.7) 11.8 (2.0) 1.4 3.5 1.3 2.8 1.2 1.5 Corporate bond issuance with a BBB rating or lower has decreased since the global financial crisis as investors are reluctant to invest in such bonds. The risk-averse attitude is now spreading to investment in corporate bonds with a single-A credit rating. Corporate Bond Issuance Volume by Credit Rating (unit: KRW trillion) ’09 ’10 ’11 ’12 ’13 Jan Feb Mar Apr May Jun Net Issuance (monthly average) 34.6 (2.9) 18.1 (1.5) 30.8 (2.6) 32.2 (2.7) 11.8 (2.0) 1.4 3.5 1.3 2.8 1.2 1.5 MEASURES TO NORMALIZE CORPORATE BOND MARKET1. Liquidity support program through P-CBOsThe government will issue primary collateralized bond obligations (P-CBOs) with a total of KRW 850 billion.Eligible candidates are companies below certain level of credit rating with corporate bonds set to mature between July 2013 and December 2014. A review committee2 will select recipient companies based on its comprehensive review of such companies’ self-help plan.Once the review committee selected recipient companies, 20% of maturing bonds for a recipient company will be repaid by the recipient company itself. The remaining 80% debt will be taken over by the Korea Development Bank (KDB), which will be resold to financial institutions (1
Attachment 1
May 24, 2013

'Growth Ladder Fund' to be Launched to Support SMEs and Venture Companies

BACKGROUNDA healthy investment ecosystem for start-ups and investors is an essential foundation for “Creative Economy”1 and “Creative Finance.”2Start-up companies are often faced with funding shortages as the early stages of business start- up growth involve greater risks for investors due to uncertainties and asymmetric information. The expectation gap between start-up owners and investors about commercial value of technology and business profitability often creates a supply-demand imbalance of funds, called “Death Valley” for start-ups.The government and public financial institutions are called to take the role of addressing such imbalance and create a sound and well-functioning ecosystem.CURRENT FUNDING CONDITIONS FOR SMES VENTURE COMPANIESOverall, SMEs and venture companies are provided with sufficient funds and liquidity through supportive measures by the government.3The funding structure of SMEs is, however, highly dependent on loans from banks and public financial institutions with 99% of SME financing from loans, while the proportion of investment remain small.Investors remain risk-averse with most investment disproportionately concentrated towards the latter phase of business cycle which involves less risks compared to the early stage of business start-up. The percentage of venture capital invested in companies with less than 3 years of operation remains a mere 30%.Loan type investments with high interest burden such as convertible bond and redeemable preferred stock are increasing.(unit: %, Korean Venture Capital Association) Common Stock Preferred Stock CB/BW PF Etc. 2012 19.5 39.6 14.9 19.9 6.1 2011 27.4 35.2 16.4 17.8 3.2 ∙ ∙ ∙ ∙ ∙ ∙ 2006 46.2 19.9 12.1 12.7 9.0 2005 36.8 17.2 16.7 16.2 13.2 CREATION OF ‘GROWTH LADDER FUND’The government plans to create a dedicated fund, tentatively named ‘Growth Ladder Fund’, to address such problems in funding conditions of SMEs venture companies and to provide innovative SMEs venture c
Attachment 1
Mar 25, 2013

National Happiness Fund To Be Launched

OVERVIEWThe FSC unveiled details about the National Happiness Fund, which will be officially launched on March 29, 2013. The Fund aims to help credit recovery of delinquent borrowers and heavily-indebted low-income earners with programs including restructuring debt, easing debt servicing burden on student loans, and converting high-interest loans to lower-interest ones.Those programs will need a total of KRW 1.5 trillion over the next 5 years. The Fund will initially raise KRW 800 billion through the KAMCO-controlled fund, loans and bond issuance. The remaining KRW 700 billion will be funded by the Fund’s proceeds and guarantee fees.Financial institutions and non-bank lenders which sign an agreement for credit recovery assistance will be obliged to sell overdue loans to the Happiness Fund if their borrowers apply for debt restructuring.1PROGRAMS TO BE FUNDED BY THE NATIONAL HAPPINESS FUND1. Credit Recovery Assistance ProgramDebt restructuring for overdue loans will be operated with two tracks:(1) Debt restructuring by borrowers’ prior applicationThe fund will purchase overdue loans by prior application of debtors who borrowed from the enlisted financial institutions.(2) Debt restructuring by borrowers’ later consent Debt restructuring by borrowers’ prior application Debt restructuring by borrowers’ later consent eligible applicants Individuals who borrowed less than 100 million won overdue for 6 months or longer as of end- February 20132 The fund first proposes debt restructuring for “Individuals who borrowed less than 100 million won overdue for 6 months or longer as of end-February 2013” benefits ① Up to 50% of debt can be written off depending on the applicant’s age, period of overdue payment, income ② Repayment schedule can be extended by up to 10 years Equivalent benefits with debt restructuring by prior application. However, the rate of debt write-off will be lower than debt restructuring by prior application. nullification of benefits If t
Attachment 1
Oct 23, 2012

Legislation Notice of Covered Bonds Act

BACKGROUNDSince the global financial crisis, there has been growing need for a legal framework to issue covered bonds in order to ensure financial institutions’ stable funding channel and financial markets’ stability.1 Covered bonds are expected to reduce financial institutions’ funding cost and serve as a stable funding channel in the event of financial crises. It is also expected that covered bonds will help improve the structure of household debt by providing financial institutions with a funding source of long-term and fixed rate loans.KEY CONTENTS1. Definition of covered bondsCovered bonds are a type of bonds secured by a cover pool of assets that the issuer provides as collateral. In the event of the issuer’s bankruptcy, investors have a preferential claim to the cover pool and are guaranteed dual recourse to the issuer’s other assets as well.2. Eligible issuers of covered bondsIn order for a financial institution to issue covered bonds, it should satisfy both institutional and eligibility requirements.- (institutional requirement) banks, Korea Housing Finance Corporation, Korea Finance Corporation, and other equivalent institutions designated by Presidential Decree- (eligibility requirement) a financial institution with equity capital of more than KRW 100 billion and a BIS ratio of more than 10 %, capable of ensuring proper funding, operation and risk management.3. Cover poolA cover pool is composed of cover assets, liquid assets and other assets with a minimum coverage ratio of collateral more than 105%.- (cover assets) mortgage loans, debts issued by governments and public institutions, government bonds- (liquid assets) cash, certificates of deposit issued by other banks with a maturity of less than 100 days- (other assets) recovery from cover assets, property earned through management, operation, and sale of assets, derivative contracts for hedging against currency and interest rate risks4. Registration and issuanceAn issuer should register its i
Attachment 1
Sep 25, 2012

FSC/FSS to Tighten Rules on Commercial Papers

BackgroundCommercial paper (CP) is an unsecured promissory note issued by companies, based only on corporate credits with no collateral backed. It is widely sold by firms for short-term funding needs as the paper requires simpler selling process than corporate bonds.CP issuance shrank temporarily after the Asian financial crisis and the credit card turmoil, but it resumed its growth trend since 2005.However, loose disclosure regulations and lack of transparency in the CP market boosted concerns over risk management and investor protection, as well as improper CP sales.The financial regulator recognized the need to find vulnerabilities in the CP market and develop measures to improve transparency and investor protection.Tighter Rules on CPThe financial regulator will tighten rules on disclosure requirement for CP in a bid to improve transparency in the CP market. It will also strengthen regulation and supervision of CP issuance and support fully-disclosed electronic trading in CPs.Currently, an asset-backed commercial paper (ABCP) issuer discloses trade data and credit rating on the homepage of Korea Financial Investment Association on the day of issuance.From October, an ABCP issuer will be required to disclose more information on the paper, including financial soundness of issuers, collateral assets and specification on product structuring as well as credit ratings.The regulator will push for amendments to Financial Investment Services and Capital Markets Act, which will make it mandatory to disclose the credit rating summary on the FSS’s DART.Currently, brokerages have no reporting obligations for ABCP transactions and the regulator is limited in its ability to monitor the CP market and respond immediately. From next year, brokerages will be required to report details on ABCP transactions.In addition, one-stop inquiry system for CP issuance will be up and running from October to provide investors information including CP’s credit ratings, collateral assets and
Attachment 1
Sep 06, 2012

Trends in ELS/DLS Markets and Related Measures for Improvement

BACKGROUNDSince the global financial crisis, the issuances of equity-linked securities (ELS) and derivatives-linked securities (DLS) have surged with the trend of low-interest rate and growing demand for customized investment.With the growing popularity of ELS and DLS, there is need to strengthen investors protection accordingly. In particular, ELS and DLS are legally treated same as corporate bonds; therefore, investors remain vulnerable to the issuer’s credit risk.Against this backdrop, the FSC came up with measures to strengthen investor protection and the soundness of ELS/DLS markets as follows:KEY MEASURES1. Monitoring system for the issuance and operations of ELS/DLSThe monitoring system will be established for more effective management and oversight of the issuance and operation of ELS/DLS. Hedged assets will be managed separately from client-owned assets. Securities houses will be required to establish separate electronic systems by issuers to manage hedged assets. The FSC will review ways to legally differentiate hedged assets from client-owned assets and provide effective protection for investors’ assets. The status of ELS/DLS issuances and operation should be reported to the FSS on a monthly basis.2. Strengthened management of issuers’ credit riskThe FSC will discourage securities houses from excessively issuing short -term ELS/DLS with three-month or less maturities in order to prevent overheated competition in the markets. Based on the monitoring of market situation, the FSC will consider whether to directly limit the issuance of ELS/DLS to a certain ratio of issuers’ equity capital.*Please read the attached file for details.
Attachment 1
Jul 19, 2012

Analysis of Korea's Househod Debt and Policy Response

BACKGROUNDKorea’s household debt has grown rapidly since the Asian financial crisis compared to the growth rate of Korea’s GDP and income, posing a potential risk to our economy. It has been also pointed out that Korea’s household debt is structurally vulnerable as household loans are mostly composed of floating-rate, lump-sum payment, and interest-only loans.Against this backdrop, the government took a set of measures to take the household debt growth under control.Last year, the ceilings on debt-to-income (DTI) ratios, temporarily eased, were reinstated in March. In June, the government took measures to curb household borrowing in the non-banking sector, while strengthening microfinance programs in order to ensure low-income households’ accessibility to financial services.Building on such measures, the government came up with a comprehensive package of measures in June 2011 to ensure a “soft landing” for the household debt risk, which includes properly managing total liquidity, improving households’ ability to repay their debt, strengthening financial institutions’ soundness, and reinforcing microfinance programs.With the recent economic slowdown and slow recovery of household income, there are limitations in taking drastic measures to curb household debt growth. There are also concerns raised about low-income or elderly borrowers’ ability to repay their loans.ANALYSIS OF HOUSEHOLD DEBT TRENDS1. OverviewIn 2011, Korea’s household debt grew at 8.1%, slower than 8.7% in 2010; however, household debt-to-GDP ratio and household debt-to-disposable income slightly rose1 as GDP and disposable income did not grow sufficiently in 2011.However, since the second half of 2011, the growth rate of household debt has slowed down.2 In the first quarter of 2012, outstanding household loans decreased for the first time in three years since 2009.The structural weakness of household debt has also been quite improved. The ratio of fixed rate loans by banks rose fro
Attachment 1
Jun 21, 2012

Task Force Formed to Legislate the Covered Bond Act

BACKGROUNDThe FSC formed a task force to legislate the Covered Bond Act which held the first meeting on June 21, 2012.A year ago, the FSC/FSS established guidelines* on the issuance of covered bonds by banks, as one of follow-up measures to properly manage the rapid growth of household debt. However, the process of securitizations incurred excessive costs, and there remained uncertainty for covered bond investors to claim dual recourse of their investment. Therefore, there has been growing need for statutory rules for issuing covered bonds.* Refer to the FSC press release titled “Guidelines on Covered Bond Issuance” published on June 29, 2011With the legislation of the Covered Bond Act, the FSC expects the issuance of covered bonds would help banks reduce their funding costs; covered bonds would serve as a stable and long-term funding source for banks particularly in the event of crises; and it would contribute to enhancing the soundness of household debt by encouraging banks to extend more long-term and fixed-rate loansUPCOMING SCHEDULE- Draft bill of the Covered Bond Act by July 2012- Approval by the FSC and 40-day legislative notice from August to September 2012- Review by the Ministry of Government Legislation; Approval at the vice-ministerial and cabinet meetings: from September to October 2012- Submission to the National Assembly for parliamentary approval: November 2012*Please read the attached file for details.
Attachment 2
Apr 02, 2012

Expanding Microfinance for Young Adults and Low-Income Households

The FSC announced a set of plans for further expanding microfinance to help financially difficult young adults and low-income households manage financially-stable lives.EASE FINANCIAL DIFFICULTIES FOR YOUNG ADULTS AND LOW-INCOME HOUSEHOLDS1. Switch their high-interest loans to low-interest loansBanks will jointly raise KRW 50 billion of guarantee funds within the first half of this year to switch young borrowers’ high-interest loans (over 20% interest rates) to low-interest loans, which will amount to a total of KRW 250 billion.2. Extend microcredit loans for emergency useA total of KRW 30 billion out of the Smile Microcredit Fund will be extended to financially difficult young adults, up to KRW 3 million per person.3. Provide financial support for young entrepreneursA fund of KRW 0.5 trillion will be created to support young entrepreneurs and start-up companies.ENSURE MICROFINANCE PROGRAMS WORK AS INTENDED1. Smile Microcredit Program- The volume of microcredit loans for small merchants in traditional markets will be almost doubled from KRW 35.6 billion in 2011 to KRW 70 billion in 2012.Loan ceilings will be temporarily raised for 10 days before and after the national holidays when merchants’ demand for cash is particularly high.- The review process for loan applications will be made more flexible to take into consideration various factors such as borrowers’ will to repay debt and business feasibility.- In order to build a strong bond with local communities, each branch of the Smile Microcredit Foundation will establish an operating committee and hire experts familiar with local communities as business consultants.- Supervision on the Smile Microfinance Foundation and its welfare business operators will be strengthened to ensure transparency and fairness in management and operation.2. Sunshine Loans- Microfinance products such as ‘Sunshine Loans’ will be exempted from regulation on loan-to-deposit (LTD) ratios for mutual cooperatives.- Various credit facto
Attachment 1
Mar 06, 2012

Plan for Improving Loan Approval Process for SMEs

BACKGROUNDSmall and medium-sized enterprises (SMEs) primarily rely on indirect financing such as bank loans due to difficulties in funding their business through direct financing sources such as corporate bonds.1. However, one of the most important elements that financial institutions consider in reviewing a company’s loan application is whether the company can provide collateral for loans; therefore, start-up businesses or SMEs which lack such collateral still have difficulties in borrowing money from banks. Bank officials hold on to such collateral-based standards in reviewing SMEs’ loan applications because they want to avoid their responsibility in the event of SME borrowers’ default.2. Banks also complain of insufficient information about SMEs available in a timely manner to evaluate SMEs’ loan applications. SMEs raise the issue of fairness with banks’ evaluation system of real estate collateral, pointing out that each bank’s different standards make it harder to ensure objective and reliable evaluations of collateral assets.3. The government and policy banks already have various programs to support SMEs; however, such programs are not well known to SMEs so they are not fully utilized.Against this backdrop, the FSC has come up with a set of plans to improve the loan approval process for SMEs by reforming the immunity system for bank officials; fostering an SME-specialized credit bureau (CB); and improving banks’ collateral evaluation system.MAJOR TASKSI. Reform the immunity system for bank officials1. Current situation(1) The financial supervisory authorities have made several reforms to the immunity system in order to stimulate bank lending to SMEs; however, such measures fell short of a permanent reform of the system.Since 2006, an average of 145 officials per bank annually has been sanctioned for approving SME loans that later turned into non-performing ones.(2) Currently, conditions for granting immunity set by both the supervisory authorities
Attachment 1
Jan 06, 2012

2012 Financial Policy Agenda

FINANCIAL MARKET OUTLOOK FOR 2012 AND KOREA’S POLICY DIRECTIONAs Europe’s ongoing debt crisis is expected to threaten global economic growth and increase volatility in global financial markets next year, Korea is also likely to face an economic slowdown, which will deal a severe blow particularly to SMEs and low-income households.Under such circumstances, the FSC set three main financial policy goals with six key objectives for 2012 as follows:[Policy goal #1: Preparedness against crises]① Take preemptive actions to secure market stability② Make Korea’s financial system further advanced[Policy goal #2: Support for businesses]③ Create a financial services environment for the growth of start-up companies and SMEs④ Develop financial services for sustainable growth[Policy goal #3: Greater financial inclusion]⑤ Support expansion of microfinance programs for low-income households⑥ Promote social contribution of financial institutions and stronger protection for financial consumersKEY POLICY OBJECTIVES FOR 20121. Preemptive actions to secure market stability(1) Create an emergency response mechanism for prompt actions in the event of a financial crisis- The FSC will conduct thorough tests on foreign currency liquidity conditions of domestic banks and closely monitor foreign capital flows.- We will also review and supplement our action plans on a frequent basis to take prompt and bold actions for market stabilization in the event of a crisis.- The FSC-FSS joint emergency response team will be ready to take swift actions against any possible crisis.(2) Keep household debt growth to a manageable level and normalize bad PF loans Household debt- The FSC will curb household debt growth to a balanced pace with real economic growth.- In order to encourage banks to extend more fixed-rate and installment loans, we will help banks secure their long-term funding sources by facilitating their issuance of MBS or covered bonds.- By end-2016, banks will be required to in
Attachment 1
Dec 14, 2011

Early Repayment of Bank Recapitalization Fund

OVERVIEWIn December 2008, the government announced its plan to create the Bank Recapitalization Fund in order to help banks secure more equity capital in response to the global financial crisis. A total of KRW 20 trillion fund was raised with contributions from the Bank of Korea (KRW 10 trillion), the Korea Development Bank (KRW 2 trillion), and institutional and retail investors (KRW 8 trillion) . With the fund, the government purchased banks’ subordinated and hybrid securities and then securitized subordinated debt of KRW 8 trillion into bonds and sold them to institutional investors.UPDATES ON FUND OPERATIONOn March 31, 2009, the government purchased hybrid and subordinated securities worth KRW 4 trillion from eight domestic banks.As of end-November 2011, a total of KRW 1.3 trillion was repaid. The government fully recovered its investment in banks’ subordinated debt by selling a total of KRW 503 billion* subordinated securities in the market. Out of the investment in hybrid securities, KRW 0.8 trillion** was repaid as issuers chose to buy back their debt before maturity.EARLY REPAYMENT SCHEMESome banks expressed their intention to buy back their hybrid securities before maturity as their earnings this year have increased.Such an early repayment requires approval from the Bank Recapitalization Fund Operation Committee and the FSS Governor for selling those securities before maturity.On December 9, 2011, the Committee has approved sales of hybrid securities worth KRW 1.5 trillion that the Bank Recapitalization Fund held in Kookmin (KRW 0.6 trillion), Hana (KRW 0.3 trillion), Woori (KRW 0.2 trillion), and NH Bank (KRW 1.5 trillion).These banks will go through their internal procedure such as approval from their board of directors for early repayment and then apply for approval from the FSS Governor.Through the buy-back scheme, it is expected that KRW 1.5 trillion will be repaid by the end of this year, and the remaining amount of money to be recovered will be l
Attachment 1
Oct 21, 2011

Plan for Improved Discretionary Investment Services

BACKGROUNDSince 2010, with socio-economic changes such as the aging population and low-interest rate trends, there has been growing demand for “discretionary investment services,” or customized services in asset management.The growth in demand for discretionary investment services appears to be driven by investors seeking for alternative investments as investors’ sentiment about fund investment was dampened and interest rates have been kept low since the global financial crisis.In particular, advisory wrap accounts have shown a significant increase in contract volumes.*Contract volumes (trillion won): 1.1 (April 2010)→5.2 (Dec. 2010) → 9.1 (June 2011)Despite such growth in size, discretionary investment services still fall short of expectations in terms of providing customized services and investor protection.① (Regulatory arbitrage) The reason discretionary investment service providers are given greater autonomy* in their operations is because of the assumption that they provide customized one-on-one services; however, they are only required to meet the same level of “know-your-client” (KYC) requirements with other regular financial investment products.*Discretionary investment services are not subject to the 10% portfolio investment rule applied to mutual funds.② (Collective management) There is a controversy about collective management as some wrap accounts are managed under one model portfolio and perceived as just a short-term investment product rather than a customized asset allocation service.③ (Investor protection) As discretionary investment services mostly just employ short-term equity investment strategies focused on a few number of stocks, there is a need for investor protection against increased market volatility.Against this backdrop, the FSC has come up with a plan for further improvements in discretionary investment services as one of mid-and-long term asset management services.KEY CONTENTSI. Strengthened requirements for customiz
Attachment 1
Jul 26, 2011

Revision Bill of the Financial Investment Services and Capital Markets Act

BACKGROUNDThe Financial Investment Services and Capital Markets Act (“FSCMA”) was established in 2007 as a comprehensive overhaul of capital markets regulations in order to promote autonomy and innovation in capital markets.Since the FSCMA took effect in February 2009, however, we had to weather the impacts of the global financial crisis. As a result, we still fell short of bringing about innovative changes that we initially intended with the enactment of the FSCMA such as creation of globally competitive investment banks (IBs).Meanwhile, after the financial crisis, global discussions on strengthening financial regulations and global coordination have been underway; and now is the time for us to domestically carry out what we have discussed at the global level.Against this backdrop, we see this is the right time to lay the foundation for the future of Korea’s financial industry, while coping with current global and domestic financial issues (e.g. Europe’s fiscal crisis, Korea’s household debts).The FSC has drafted a revision bill of the FSCMA, made public for 20 days from July 27 to August 16.KEY REVISIONS TO THE FSCMAI. Development of Korean IBsFor the development of home-grown investment banks capable of financing new growth industries and large overseas projects,1. Securities companies that meet certain statutory requirements such as equity capital and risk* management capability will be qualified as investment banks (or “comprehensive financial investment services providers”).*Given that securities companies can start prime brokerage services just with a revision of the FSCMA Enforcement Decree, the minimum amount of equity capital for a security firm to provide investment banking services will be set at 3 trillion won, which could be further raised later depending on developments after the revision of the FSCMA.2. The revision bill has regulations on corporate lending, internalization of order execution in place in order to help IBs provide a comp
Attachment 1
Jul 04, 2011

Plans for the Soundness of Savings Banks' Management

CURRENT CONDITIONS OF SAVINGS BANKS(Assets) As of end-March 2011, total assets of 98 mutual savings banks in operation were KRW74 trillion, down 2% from KRW75.5 trillion at the end of 2010.Mutual savings banks’ operations are still focused on extending real estate-related loans including PF loans, which accounts for 42.8%* of their total outstanding loans as of end-March 2011.(*cf. 44.7% at the end of 2010)(Deposits) As of end-March 2011, mutual savings banks received a total of KRW 64.4 trillion in deposits, down 2.8% from KRW66.3 trillion at the end of 2010.(Soundness) As of end-March 2011, the delinquency ratio of mutual savings banks rose to15.8%, up 1%p from 14.8% at the end of 2010, mainly due to rise in the delinquency ratio for real estate –related loans.*As of end-March 2011, the delinquency ratio for real estate loans rose to 20.4%, up 2.4%p from 18.0% at the end-December 2010.Despite incurred losses of savings banks, the BIS capital-adequacy ratio rose to 10.25%, up 0.42%p from 9.83% at the end of 2010, backed by continued efforts for recapitalization.* With losses of seven savings banks whose operations were suspended added, the BIS ratio combined would drop to around 7%. (as of end-March 2011, 7.57%, lower than 9.14% in June 2010)(Profitability) Due to the sluggish real estate market and growing competition in the retail financial sector, mutual savings banks recorded a total of KRW333.3 losses from July 2009 to June 2010; and KRW48.7 billion from July 2010 to March 2011.* From July 2010 to March 2011, 67 savings banks (68.4%) posted profits while 31savings banks (31.6%) incurred losses.PLANS TO ENHANCE THE SOUNDNESS OF SAVINGS BANKS’MANAGEMENT1. To help mutual savings banks’ “soft landing”- Additional purchase of non-performing PF loans from savings banks: As of June 20, the government purchased non-performing PF loans worth KRW1.9 trillion through the Restructuring Fund and singed an MOU with savings banks to help them normalize their oper
Attachment 1
Jun 30, 2011

Guidelines on Covered Bond Issuance

BACKGROUNDThe FSC/FSS set up guidelines on the issuance of covered bonds by banks, as one of follow-up measures to implement the Comprehensive Measures on Household Debt. The guidelines are intended to provide a framework for covered bond issuances, diversifying banks’ financing instruments and encouraging banks to offer more long-term and fixed-rate mortgage loans instead of short-term and floating-rate ones.KEY CONTENTS1. Definition of Covered BondsCovered bonds are a type of bonds backed by a cover pool of assets that the issuer provides as collateral. In the event of default, investors are guaranteed dual recourse to both the pool and the issuer.**The issuer is responsible for repaying the covered bonds and should offer investors a preferential claim to the cover pool.2. Requirements for Issuance of Covered Bonds(Issuers) Covered bond issuers must be banks with the BIS ratio over 10% (as of the end of the previous fiscal year) or securitization entities created by such banks.(Issuance volume/maturity) An issuer is not permitted to issue covered bonds in excess of 4% of the issuer’s total liability. Maturities of covered bonds range from one year to 30 years.3. Requirements for Cover Assets(Cover assets) A cover pool should be composed of mortgage loans that meet certain criteria* and mortgage-backed securities (MBS) issued by the Korea Housing Finance Corporation (KHFC). An issuer must maintain at least 5% of the total value of outstanding issuance as excess collateral.*prime mortgage loans; mortgages of more than 120% of the value of their property; loan-to-value (LTV) ratio of less than 70%; late payments of less than 60 days, etc.(Evaluation of asset eligibility) An issuer must evaluate eligibility of cover assets on a quarterly basis and provide investors with results of the evaluations. Disqualified assets in the pool should be replaced by qualified assets.(Long-term mortgage loans with fixed rates) An issuer must ensure that the cover pool is not compo
Attachment 1
Jun 29, 2011

Comprehensive Measures on Household Debt

PROGRESS BRIEFThe government has responded to household debt problems with a series of policy measures in order to enhance the soundness of household debt and financial institutions and at the same time to ensure low-income households’ access to loans.- The application of debt-to-income (DTI) limits for mortgage loans, which had been temporarily eased until last March, was reinstated starting April.- Measures to Encourage Sound Competition among Credit Card Companies (Feb. 9); Measures to Curb Credit Card Companies from Excessively Expanding Their Businesses (June 7)- Measures to Ensure Low-Income Households’ Access to Loans (April 15)DIAGNOSIS OF THE CURRENT HOUSEHOLD DEBT LEVELSAs of end-March 2011, Korea’s household debt reached KRW 801.4 trillion with an annual growth rate of 13% on average since the Asian financial crisis, exceeding the nominal GDP growth rate of 7.3% over the same period.The growth of household debt during the post-crisis period is attributed to the combination of various factors such as low interest rates, abundant liquidity, expectations about rise in real estate prices, and excessive lending by financial institutions.With all the conditions – the soundness of household debt, the proportions of loans extended to borrowers with good credit ratings, loss-absorbing capacity of financial institutions, and household asset holdings – taken into account, we see the current levels of household debt still “broadly manageable.”However, we cannot rule out a possibility that household debt problems would turn into threats to Korea’s economy and financial markets unless we take preemptive measures; therefore, the government came up with a package of measures to contain potential risks of household debt.FINANCIAL POLICY MEASURES ON HOUSEHOLD DEBT1. Measures to keep household debt growth at a manageable paceA. For the banking sector- Apply higher BIS risk weights to high-risk mortgage loans or excessive loans disproportionately concentrated
Attachment 1
Mar 30, 2011

Monitoring Results of Domestic Banks' Foreign Currency Financing

OverviewThe Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have been operating an Emergency Financial Situation Room and holding Joint Financial Check-up Meetings as the need arose to monitor the effects of external risk factors such as earthquakes in Japan, unrest in the Middle East and European sovereign risk on domestic financial markets including foreign currency funding and management of domestic banking industry and foreign exchange market*.*Refer to the press release dated 13 March 2011, “Result of Emergency Financial Check-up Meeting in relation to earthquakes in Japan”Foreign currency funding in the wake of earthquakes in JapanAs of March 20, 2011, domestic banks including foreign bank branches operating in Korea raised U$248.8 billion through foreign currency borrowings and deposits, etc. They had U$214.5 billion in foreign currency-denominated assets under management in the forms of foreign currency loans, trade financing and foreign currency securities, etc.Since earthquakes in Japan on 11 March 2011, foreign currency funding*, mostly through foreign currency borrowings, increased by U$1 billion and foreign currency management** increased by U $2.6 billion. The increase of U$1 billion in foreign currency funding since March 11 mostly resulted from domestic banks raising more foreign currency funds.* U$1.8 billion up in foreign currency borrowings, U$800 million down in foreign currency deposits **U$1 billion up in foreign currency loans, U$1 billion up in trade financing, U$600 million up in foreign currency securitiesAn FSS survey of domestic banks and foreign bank branches conducted immediately after the earthquakes broke out in Japan found that there were no signs of capital outflows. Instead, borrowings from headquarters by domestic branches of four Japanese banks increased U$940 million from March 14 to 25 even after the breakout of earthquakes.In addition, funding conditions for domestic banks remained stable af
Attachment 1
Mar 17, 2011

Plan for Strengthened Supervision on MSBs

The FSC has announced its plan for strengthened supervision on savings banks.Key Contents1. To prevent moral hazard of savings banks’ largest shareholdersMany of savings banks’ largest shareholders fall short of funding capability and social credibility and thus many savings banks have been vulnerable to improper practices by their largest shareholders. Therefore, the FSC plans to tighten its regulatory oversight on the biggest shareholders and hold them more accountable for savings banks’ business operations.2. To curb excessive business expansion of savings banks and promote their soundnessWhile savings banks have been engaged in disproportionate investment in high-risk assets and excessive businesses expansion, prudential regulations on them remained loose. In order to promote the soundness of savings banks, the FSC will end preferential treatment in loan caps for some savings banks and strengthen supervision on affiliated savings banks.3. To enhance investor protectionThere have been many claims that investors suffered from lack of transparency in accounting and contracts made based on incomplete information. Therefore, the FSC will better protect investors by strengthening market disciplines and curbing subordinated bond issuance by savings banks.4. To strengthen supervision over the cause of insolvencyThe FSC will closely work with related government agencies to seek civil and criminal charges against savings banks’ largest shareholders and management if they were found responsible for any business failure and misconduct.Details1. To prevent moral hazard of savings banks’ largest shareholders1) When the biggest shareholder is alleged to commit any illegal act, the FSS will be able to launch an investigation into the largest shareholder.- Revision of the Savings Bank Act (to be submitted to the National Assembly for 3Q of 2011)2) The FSC/FSS will ask savings banks’ largest shareholders who have effective control over the management to become registe
Attachment 1