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Oct 16, 2009
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Oct 14, 2009
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Sep 17, 2009
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Sep 04, 2009
- Progress on Corporate Restructuring
- OverviewA preemptive corporate restructuring initiative has been carried out thus far in the interests of financial market stability and recovery from the economic crisis.Although partial signs of an economic recovery have recently been apparent, staying committed to a sustained restructuring effort remains paramount to strengthening Korea’s economic competitiveness going forward.Recognizing that an unwavering commitment to corporate restructuring is necessary, the government reviewed the progress during the President-led economic policy meeting earlier today and determined the future direction of corporate restructuring.Progress in Corporate RestructuringRestructuring of ConglomeratesA full-fledged corporate restructuring has been underway, which included contractual agreements with the nine conglomerates whose liquidity positions had earlier raised concerns. For the groups that signed contractual agreements, intensive self-rescue plans, such as sales of subsidiaries, asset dispositions, and capital expansions, are being actively pursued.Through the main creditor banks, the progress of the conglomerates’ self-rescue plans is being interminably reviewed, and by encouraging their prompt execution proactive restructuring is being given added impetus.Industry-Specific RestructuringTo lay to rest market uncertainties surrounding the possible distress in construction, shipbuilding, and shipping industries, 46 of the 277 companies that were rated C and D were selected for restructuring.Most of the creditors and the respective workout companies have entered into MOUs and are moving quickly through restructuring, such as debt rescheduling and self-rescue plans. As a result, six of the companies have since graduated from workout. Among the 14 D-rated companies, seven companies were called to repay their loans, three companies were put to court receivership, and four were brought subject to the process of liquidation and dissolution.Restructuring of Large Individual Compa
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Aug 19, 2009
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Jul 28, 2009
- Privatization of Korea Development Bank
- After four months of discussions, the Committee for the Establishment of Korea Public Banking Corporation (KPBC) formed by members from the FSC, MOSF, MKE, and professionals from the private sector has concluded on the following specific spin-off plan for KDB.A focus has been given to dividing the assets fairly and allocating them in a reasonable manner so that KDB can be privatized smoothly and KPBC can conduct public lending effectively.KDB is forecast to have assets of KRW 172.2 trillion, liabilities of KRW 155.0 trillion, shareholders’ equity of KRW 17.1 trillion and a BIS ratio of 13.1% as of end-August.Detailed Spin-off PlanA. Establishment of KDB Holding Company (KDBHC)KDBHC will be established with KRW 1.5 trillion of assets currently held by KDB; Daewoo Securities (KRW 973.4 billion), KDB Capital (KRW 433.5 billion), KDB Asset Mgmt (KRW 41.6 billion), and Infra Asset Mgmt (KRW 11.7 billion).Its liabilities and shareholders’ equity will be KRW 0.35 trillion and KRW 1.15 trillion respectively.B. Establishment of Korea Public Banking Corp (KPBC)KPBC will be established with KRW 28 trillion in assets, KRW 3 trillion in shareholders’ equity and KRW 25 trillion in liabilities.The shares of government-owned companies (worth KRW 15.1 trillion) will be transferred to KPBC as required by law. By law, the government is required to invest 100% or at least more than 50% in public entities such as Korea Electric Power Corporation, Seoul Metropolitan Rapid Transit Corporation and Korea Water Resources Corporation.The shares of companies undergoing restructuring, namely Hyundai Engineering Construction, Hynix, SK Networks, Korea Aerospace Industries and Daewoo International, will also be transferred to KPBC.Assets injected into the Bank Recapitalization Fund, cash assets of KRW 3 trillion and the KDB Capital building will be transferred to the KPBC.Industrial Finance Bonds (IFB), which account for most of KPBC’s liabilities of KRW 25 trillion, will be transferred o
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Jul 22, 2009
- Amendments to the Financial Holding Companies Act
- Relating to Separation between Industrial and Financial CapitalThe National Assembly has approved the amendments to the Financial Holding Companies Act to be enacted on October 10, 2009, resulting in the relaxation of a "non-financial business operator" (NFBO) from taking ownership of a bank holding company.Currently, an NFBO is not allowed to own more than 4% of the voting shares of a bank holding company. When the amendments become effective, they will be allowed to own up to 9% of the shares. This is possible under the precondition that an advance-screening procedure and a stringent post-supervision be in place to prevent industrial capital from manipulating the financial system.When an NFBO wants to own more than 4% of the voting shares of a bank holding company, become the largest shareholder or participate in management, it must do so with a preapproval of the FSC. And a more stringent post-supervision will be in place to restrict any illegal transactions between the bank and the largest shareholder.Also, when an NFBO invests into a private equity fund (PEF) through a limited partnership and the regulation in which the PEF not be treated as an NFBO has been amended. And the current limit on the amount an NFBO can invest into such PEF and not be regarded as an NFBO (10%) will be raised to 18%. Moreover, the maximum amount of which affiliated companies can jointly invest into such PEF and not be regarded as an NFBO (30%) will also be raised to 36%.In the past, the National Pension Service (NPS) was generally perceived as being ineligible to become a major shareholder of a bank holding company because it was considered an NFBO. However, if certain criterions are met, it will not be deemed as an NFBO.Relating to Regulation on Non-bank Financial Holding CompaniesFour months after the promulgation of the amendments to the Financial Holding Companies Act, a non-bank holding financial company will be allowed to take controlling ownership of non-financial companies. Fi
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Jul 17, 2009
- SME Loans & Credit Guarantees in the First Half of 2009
- Bank LoansLoans provided by the 18 domestic banks to small and medium-sized enterprises (SMEs) in the first half of 2009 increased by KRW 16.2 trillion from KRW 422.4 trillion to KRW438.6 trillion as of end-June.In June alone, the preliminary net increase in SME loans was KRW1.1 trillion won, but if you take into account loan dispositions and write-offs, it rose KRW3.1 trillion.Fast Track ProgramSince the Fast Track program got started on October 13, 2008, a total of 9,803 companies have been extended KRW17.7 trillion in support, KRW4.7 trillion of which was provided to those having incurred losses in KIKO and other currency options.A total of KRW2.4 trillion was extended to 1,929 companies through the Fast Track program in June, including 716 new applications.Due to improving internal liquidity status, the number of newly registered companies for support has been continually on the decrease since March, 2009.Support through the Center of the SME Financial OmbudsmanSince the Center of the SME Financial Ombudsman opened on September 11, 2008 up until end-June 2009, a total of 2,821 cases were heard of which 49.2% or 1,387 cases were merited with KRW1,161.4 billion in support from the banks.In particular, the six SME Financial Support Offices located in industrial parks counseled 658 cases and accepted 35.3% or 232 cases for support between February 23 and June 30.Guarantees Bank Loan Maturity ExtensionsSince the start of expansion of guarantees on February 16, there has been KRW24.7 trillion in new guarantees to ease the burden on SME liquidity status. Since the peak in March (KRW5.9 trillion), it has been on the decrease and stabilizing.Despite the slowing of SME lending increase of KRW16.2 trillion from KRW35.1 trillion last year, maturity extensions rose to KRW16.4 trillion from KRW15.1 trillion a year earlier. The rollover ratio consistently showed over 90%.In the first half of 2009, KRW16.7 trillion (KRW3.8 trillion in June) was extended in support of core busin
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Jun 29, 2009
- FSB Inaugural Meeting in Basel
- The Financial Stability Board (FSB) held its inaugural meeting in Basel on 26-27 June, the first meeting since its re-establishment as the FSB with an expanded membership and a broadened mandate. The FSC Chairman, Dong-Soo Chin and the BOK Governor, Sung-Tae Lee attended the meeting as Korea’s official representatives.The FSB, which was re-established in April 2009 as the successor to the Financial Stability Forum (FSF), brings together national authorities responsible for financial stability in significant international financial centers, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. It is currently chaired by Mario Draghi, Governor of the Bank of Italy.The new structures of the FSB include, in addition to the FSB Plenary, a Steering Committee and three Standing Committees – for Vulnerabilities Assessment; Supervisory and Regulatory Cooperation; and Standards Implementation.Representing Korea, the FSC has been included in the Steering Committee among 23 other country representatives and international standard-setting bodies (SSBs). The term of service for the Committee members is two years.The Steering Committee will be chaired by the FSB Chair and will provide operational guidance between Plenary meetings to carry forward the directions of the FSB. The Committee will also be responsible for providing guidance and monitoring of the work progress, as well as coordination between Working Groups. It will also be conducting Joint Strategic Reviews on new international standards and policies put forth by SSBs.The Steering Committee’s composition is decided by the FSB Chair in a manner that ensures maximum effectiveness in taking forward the FSB’s work while having regard to balanced representation in terms of geographic regions and institutional functions. The Committee ensures effective information flow to the full membership.The three Standing Committees –
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Jun 12, 2009
- SME Loans and Credit Guarantees in May 2009
- Bank LoansContinuing its upward trend since the beginning of the year, the month-on-month net increase in loans provided by the 18 domestic banks to small and medium-sized enterprises (SMEs) grew by KRW3.2 trillion from KRW434.5 trillion in April to KRW437.7 trillion in May.During the first five months of the year, the net increase in SME loans was KRW15.2 trillion, and KRW17.3 trillion when the actual support amount is added, including deposit-loan nettings.Fast Track ProgramDuring May, a total of KRW2.0 trillion was extended to 893 SMEs through the Fast Track program. Demand for loans through the program has been slowing since March due to improved financial conditions of SMEs following the liquidity injections.From October 13, 2008 to May 30, 2009, a total of 9,087 SMEs were extended KRW15.3 trillion in support, including 588 companies that received KRW4.0 trillion for losses stemming from KIKO contracts.Support through the Center of the SME Financial OmbudsmanDuring May, the Center of the SME Financial Ombudsman heard 232 cases and extended KRW66.9 billion in support. From September 11, 2008 to May 31, 2009, a total of 2,613 cases were heard of which 47.6% or 1,245 cases were merited with KRW990.7 billion in support from the banks.In particular, the six SME Financial Support Offices located in industrial parks counseled 551 cases and accepted 171 or 31.0% of the cases for support between February 23 and May 29.Guarantees Bank Loan Maturity Extensions Future SupportIn May, new guarantees more than tripled to KRW4.4 trillion from KRW1.5 trillion over the same period last year. But the uptrend in the applications for and issuance of guarantees, which shot up until March this year, started slowing in April.Maturity extensions have also been running smoothly with the average maturity extension of guarantees of KRW3.2 trillion and an average maturity extension rate of 94.3% in May.During the first five months of the year, there was KRW13.1 trillion in support for core
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May 15, 2009
- FSC Chairman, Dong-Soo Chin Meets Foreign Correspondents
- I. GreetingsDistinguished members of the Seoul Foreign Correspondents’ Club, and ladies and gentlemen,It’s great to be here with you and I thank you for coming.I also thank the Seoul Foreign Correspondents’ Club for helping us arrange today’s meeting and giving me a chance to speak to foreign correspondents about Korea’s policy response to the global financial crisis.It is my hope that today’s meeting will shed new light on recent market and policy developments in Korea and what you can expect going forward in terms of financial policy from the FSC.II. The Financial Crisis and Korea’s ResponsePolicymakers in the U.S. and other major countries have responded aggressively and forcefully to the global financial crisis.With many characterizing the crisis as the worst since the Great Depression, there was more than ample justification for bold policy measures.Korea’s policymakers acted in a similarly bold fashion to cushion the impact of the crisis on the financial system and the broad economy.In terms of financial policy, we had two broad goals to accomplish: safeguarding the financial markets and reinstating the financial sector as the patron for thereal economy.Safeguarding the Financial MarketsAs the financial crisis began to spread around the world, it became clear to us that we had to act swiftly on several fronts to avoid systemic risk, and maintain the stability of the financial markets.To stabilize the foreign currency market, the government provided external debt guarantees for domestic banks and signed currency swap arrangements with major countries.On the other hand, to bring back stability to the financial markets, interest rates were cut and the Bond Market Stabilization Fund was created to increase liquidity and help restore the flow of credit to the real sector.Steps were also taken to prevent market instability due to abrupt capital outflow from the short-term money market.Reinstating the Financial Sector as the Patron for the Real Eco
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May 15, 2009
- Opening of the Fn Hub Korea, Busan
- The opening ceremony of ‘Fn Hub Korea, Busan’ will be held on May 15, 2009 at 2p.m. Fn Hub Korea, Busan was established to support Busan (Munhyeon), designated as a specialized financial cluster on January 28, 2009, develop into a global financial center.More than 30 representatives from financial institutions and related agencies will be present to celebrate the opening of Fn Hub Korea, Busan, including the FSS Governor, Jong Chang Kim, the Mayor of Busan, Nam Sik Hur, members of the National Assembly, Byung Soo Suh, Jong Hoon Kim and Jin Bok Lee, the President of the Busan Metropolitan Council, Jong Mo Je, as well as the Chairman of the Foreign Banks Group, Michael Hellbeck.Fn Hub Korea, Busan will assist in the promotion of Busan as an attractive business destination for global financial companies as well as provide assistance to domestic financial companies planning overseas expansion. It will also provide one-stop services to support with regulatory approval processes and work to resolve any business difficulties and obstacles encountered by the financial companies to contribute to the growth and development of Busan into a financial center specializing in marine related finance* and derivatives.* For the development and the transaction of financial products related to the marine industry such as shipbuilding, marine transportation, and logistics.* Please refer to the attached PDF for details.
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May 13, 2009
- SME Financial Support Results (April 2009)
- 1) Bank LoansDespite the economic slowdown, loans provided by 18 domestic banks to small and medium-sized enterprises (SMEs) increased to total KRW434.3 trillion as of end-April this year on the back of expanded guarantees and maturity extensions.For the first four months of 2009, the net increase in SME loans was KRW12.0 trillion from the end of last year. When adding the actual support amount, including SME bank deposit-loan nettings, which is to be reflected in MOU evaluations, the net increase amounted to KRW13.7 trillion.In April alone, the preliminary net increase in SME loans was KRW2.2 trillion won, lower than a monthly average of KRW3.0 – 3.7 trillion during the first three months of the year. The drop was largely attributed to NACF’s KRW900 billion policy fund coming due and sluggish overall demand for capital including slowed issuance of credit guarantees.More recently, conditions have also turned in favor of small and medium-sized companies, as witnessed with the Business Survey Index going up from 56 in January 2009 to 83 in April.2) Fast Track ProgramKeeping up with the high pace set in January this year, a total of KRW2.6 trillion was extended to 1,231 companies through the Fast Track program in April.Since the Fast Track program was initiated on October 13, 2008, a total of 8,194 companies have been extended KRW13.3 trillion in support, KRW3.8 trillion of which was provided to 583 companies that had incurred losses in KIKO and other currency option contracts.3) Guarantees Bank Loan Maturity ExtensionsIn April, there was KRW4.9 trillion in new guarantees, 3.1 times more than the KRW1.6 trillion issued during the same period last year. But as the number of applications for guarantees has fallen on month by 14.8% to 66,307 cases inApril, the pace of increase is slowing for both guarantee applications and their issues.Also last month, there was KRW3.6 trillion in maturity extensions with a 95% rollover rate.From January to April, KRW9.5 trillion was
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May 04, 2009
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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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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
- 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,
