Press Releases - Financial Services Commission

Press Releases

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Jul 24, 1998

Finalization of P&A Terms and Conditions

□ Financial Supervisory Commission held a regular meeting on Friday, July 24, 1998 and completed final deliberations regarding purchase and assumption arrangement terms and conditions with the 5 acquiring banks taking over banks that were forced to close down on June 29th□ Main Featureso Fiscal support will be provided as a way to prevent the deterioration of the acquiring bank's financial structure subsequent to taking over resolved bank's assets and liabilities· Only good assets and liabilities will be transferred to the acquiring banks and also a put-back option will be provided to the acquiring banks to sell back to the Korea Asset Management Corporation (KAMC) any assets that turn bad within a 6 month period subsequent to business transfer (within a 6 month period from the date the size of the assets and liabilities transferred is fixed after the due diligence)· Furthermore, capital will be injected to the acquiring banks to the extent necessary to prevent the deterioration of acquiring bank's BIS ratio as a result of taking on resolved bank's assets, whereas KAMC will purchase some of the acquiring bank's bad assets as well.o Bad assets of the resolved banks will be purchased by KAMC at market price (in the absence of market price past collection rates will be applied) and payment will be made to the acquiring banks accordingly· Payment will be made within 3 months subsequent to the business transfer order date (June 29th) by providing bonds※ issued by KAMC (Non-performing Assets Disposal Fund)※ Maturity ; 5 years, interest term ; every 3 months, interest rate ; average rate of return for benchmark bond (national housing bond type 1) for 1 month period prior to interest payment dateo In the case the sum of the valuation amount of transferred good assets and payment from KAMC is less than the valuation amount of liabilities, such difference will be covered by the Korea Deposit Insurance Corporation (KDIC) in a manner to be determined by the Financial
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Jul 01, 1998

Strengthening of Loan Classification and Provisioning ...

The Banking Supervisory Authority in accordance to MOU with IMF amended related regulations to enhance prudential regulation on commercial banks.The following details the core contents of the amendment that will go into effect July 1, 1998.- Strengthening of prudential regulation on overdue loans to incorporate international standardsClassificationPrior to AmendmentAmended CriteriaNormalloans in arrears by less than 3 monthsloans in arrears by less than 1 monthPrecautionaryloans in arrears by 3 months to less than 6 monthsloans in arrears by 1 month to less than 3 monthsSubstandard and belowloans in arrears by no less than 6 monthsloans in arrears by no less than 3 months- Provisioning requirements for precautionary loans will be increased from 1% to 2%- Non-tradable securities (privately-placed bonds, commercial papers and guaranteed bills) of trust accounts will be subject to loss provisioning (provisionsing for bond amortization)
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Jun 29, 1998

FSC Press Release upon Ailing Bank Resolution

■ Final assessment results of the Bank Appraisal Committee were reported to the Financial Supervisory Commission on June 28, 1998. A special meeting of the Financial Supervisory Commission was held at 7:00 am on June 29, 1998 and utilizing input from the committee decided the following;○Banks whose rehabilitation plans are deemed feasible, such as Cho Hung Bank, Commercial Bank of Korea, Hanil Bank, Korea Exchange Bank, Peace Bank of Korea, Kangwon Bank and Chungbuk Bank each received conditional approval of rehabilitation plan and are required to submit an implementation plan containing strong management improvement plans by the end of July'○Banks whose rehabilitation plans are deemed not feasible, such as Dong Hwa Bank, Dongnam Bank, Dae Dong Bank, Chung Chong Bank and Kyungki Bank each received disapproval of rehabilitation plan and will have to transfer their assets and liabilities to Shinhan Bank, Housing Commercial Bank, Kookmin Bank, Hana Bank, Koram Bank, respectively■The government will exert utmost effort in minimizing clients' inconveniences during the course of bank resolution by implementing following measuresNot only payment settlement and deposit repayment businesses but also businesses of overdraft and bill discount will be carried out as normalIn order to restore financial market stability as soon as possible, liquidity situation will be improved and credit extention toward corporate clients of resolved banks will be enhanced1. Progress to-date■Submission of rehabilitation plans (April 30, 1998)○12 banks with BIS ratio that fell short of 8% as of December 1997 were required to submit rehabilitation plans■Accounting firms' evaluation on rehabilitation plans (May 1 - June 8, 1998)○In accordance to evaluation criteria agreed upon with the IBRD, the feasibility of the following elements were evaluated - capital adequacy, recapitalization plan, asset quality classification, reduction plan for risky assets, cost reduction scheme, managemen
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May 21, 1998

Chairman`s Speech at Seoul Foreign Correspondent`s Club

Ladies and gentlemenIt is my honor to have this opportunity to share with you the framework and the key elements of the restructuring package for the financial and corporate sectors in Korea.As you know, Korea is currently facing crucial challenges. At the core of them lies the successful installation of new rules into the Korean economy.In the past, the government-led economy has had serious market imperfections, in particular, deep rooted problems with capital resource allocations and business opportunities.Past industrial policies has traditionally meant capacity-driven policies for the largest companies and have created a vigorous demand for new capital in the rapidly growing economy.In other words, many Korean industries have experienced a short supply of monetary capital. This has been the result of commercial banks focusing on funding government-led projects rather than lending to competitive markets.This is evident from the long lines of borrowers knocking on the doors of the banks. This tradition has distorted the fair allocation of credit.Only large companies with sufficient collateral had been the beneficiaries of the limited credit resources while small to medium sized companies had been subject to a constant credit crunch.In turn, large companies have been active in expanding their production capacity and diversifying into new and often non-competitive businesses with borrowed capital. Thus, high leverage and thin margin are common characteristics of the Korean companies.As a result, the non-performing loans increased astronomically and the Korean economy lost its credit from the international financial circles.To restore as quickly as possible international credibility in Korea, the government will gather all of its capacities to execute the restructuring programs.Ee strongly believe that any delay in implementation will increase the cost of restructuring exponentially and decrease our chances of a prosperous future. Restructuring is not a matter of ch
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