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Sep 17, 2009

FSB Plenary Meeting Report

The FSC Chairman Chin Dong-Soo attended the 2nd FSB Plenary Meeting in Paris on September 15. The meeting deliberated and finalized on most subjects that will be on the report, “Improving Financial Regulation” scheduled to be submitted to the Pittsburg G20 Summit on September 24-25.The FSC Chairman Chin has contributed in the discussions taken place at the Plenary, the Steering Committee and the Standing Committee through his presentations on the following three main topics: 1. An in-depth discussion took place at the Plenary Meeting especially on the issue of how to stabilize the foreign currency liquidity in emerging countries. This particular subject has been adopted as an official agenda of the meeting as we proposed based upon our own experience in the current crisis. We successfully brought to attention one of the most serious stability issues faced by emerging economies.2. Korea agreed on the basic concept and direction of the FSB’s regulatory reform of the capital framework and that the government and the banking industry are preparing for the strengthening of regulation.3. We also emphasized that not only home but host countries should play more significant roles in within the supervisory colleges, a system of collaborated supervision of systemically important financial institutions.Furthermore, the Standing Committee for Vulnerability Assessment, one of three Standing Committees within the FSB, has reported on four main areas of risk that include: the market impact of rapidly rising government debt, risks related to the timing of exit strategies from current policies, and the challenges in maintaining an appropriate balance and pace of regulatory reform. Authorities in emerging economies are assessing policy challenges related to currency mismatches on sectoral balance sheets and instability in portfolio flows.* Please refer to the attached PDF for details.
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Sep 11, 2009

Systemic Improvements in ELS Issuances & Operations

BackgroundThe FSC/FSS has put forth the following preemptive measures to make systemic improvements in the ELS issuances and operations to prevent the possibility of stock price manipulation at the maturity for the intention of evading profit payment.Main ChangesTo improve the final payout conditions at maturity, the valuation price at maturity will be changed from the closing price on the maturity date to either the average closing price of at least three days prior to maturity or the volume-weighted average price on the maturity date in the following ELS cases:When ELS has as its underlying equity stocks that are outside the top 20 in total stock market capitalization on the day of reporting, andWhen the amount of the issued ELS exceeding 10% of total daily average transactions during the preceding 1 month period prior to reporting.In the case where a securities company enters into back-to-back hedging contracts at the time of issuing ELS, the securities company will make known the counterparty either on the prospectus or to the investor. Otherwise, the issuer is to acquire and hold more than 3% of the issued security till maturity.Issuers of ELS which hedge on its own are required to set a ‘Hedge-related Internal Code’ while ELS issuers that use back-to-back hedging should ascertain whether or not it’s counterparty has the code and is available.The Korea Exchange is presently expected to release a guideline on ELS hedging for ELS managers.Expected Positive OutcomesELS-related market transparency and a noticeable diminishment in the risk of stock price manipulation on the day of maturity are positive outcomes expected from the latest changes. On the other hand, the changed measures will keep intact the positive functions of ELS, such as providing investment opportunities for high returns and stimulating the stock market via a hedging of underlying assets.* Please refer to the attached PDF for details.
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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 28, 2009

Legislation Notice of Amendments to the Enforcement Decrees of the Banking Act and the Financial Holding Companies Act

BackgroundThe Banking Act and the Financial Holding Companies Act were recently amended and will be enacted on October 10, 2009. Improvements were made to the restriction on shareholding of commercial banks and bank holding companies (hereinafter referred to as “banks”) by non-financial business operators (NFBO).The Korean government decided on enforcement decrees regarding FSC oversight of bank ownership by NFBOs and private equity funds (PEF). The FSC has proposed amendments to the enforcement decrees of the relevant acts in order to improve and supplement the existing system, such as the reporting of changes to bank ownership. Thus, this legislation notice will be in effect fromAugust 28 to September 7, 2009.Main PointsA. Matter related to the delegation and enactment of the amended Acts1. NFBO’s participation in bank managementUnder the amended Acts, when an NFBO wants to own more than 4% of bank shares and participate in management through appointing directors to the board, it must do so with a pre-approval from the FSC. Moreover, a stringent post-approval supervision* will be in place to prevent any conflict of interest or illegal transaction.*eligibility assessment of the largest shareholder; limiting transactions such as the bank providing credit lines to the largest shareholder; and on-site FSS audits conducted when accused of illegal transactions.“Participation in management” is defined as follows:The number of senior managers elected by the NFBO exceeds the regulated number of, for instance, one or two persons.The NFBO is involved in major decision-making process and regular business operations, and can limit bank management’s decision-making authority through agreements and contracts.2. Approval of NFBO’s bank ownershipi) Under the amended act, an NFBO must gain approval from the FSC to acquire more than 4% of bank shares and become the largest shareholder or participate in management. The relevant enforcement decree dictates th
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Aug 19, 2009

FSC English Blog

The Financial Services Commission is officially launching its English blog http://fsckorea.wordpress.com today.Its purpose is to raise public awareness of the changes and progresses in multiple areas of Korea’s financial policies and to promote interactive policy communication with the public as well as with foreign investors and others who are interested in Korea’s financial policies.It aims to explain hard-to-understand financial policies in a simple and easy-to-understand format which the public without much financial knowledge can still manage to comprehend what the policies are about as well as the background reasons for them.The contents of the blog will be on key financial and economic issues, recent press releases from the FSC and other relevant government bodies, and press coverage on Korea’s economy and its financial markets. Currently updated contents are issues relating to the Financial Holdings Company Act, FX margin trading, the Fast Track Program, etc.Links to the blog can be found on the websites of multiple government agencies: Financial Supervisory Services Korea Deposit Insurance CorporationKorea Asset Management Corporation KoscomKibo Technology Fund Korea Credit Guarantee Fund Korea Development Bank Industrial Bank of Korea http://english.fss.or.kr https://www.kdic.or.kr/english http://kamco.or.kr/eng.html http://english.koscom.co.kr http://eng.kibo.or.kr http://eng.kodit.co.kr http://www.kdb.co.kr http://english.ibk.co.kr * Please refer to the attached PDF for details.
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Aug 17, 2009

Facility Investment Fund

In a follow-up measure to the July 2 announcement on ‘Plans to Promote Corporate Investment’ released through the Ministry of Strategy and Finance, specific plans to promote facility investment in the corporate sector have been devised. In accordance with the original plan to inject KRW 5 trillion into establishing a Facility Investment Fund through state-owned Korea Development Bank (KDB) and Industrial Bank of Korea (IBK), an initial investment of KRW 2 trillion will be made.Specific DetailsA total amount of KRW 2 trillion will be injected to the new Fund, whereas KDB will initially contribute KRW 0.6 trillion in addition to KRW 0.8 trillion through the Korea Policy Banking Corporation (KPBC) once it is established in October; the remaining KRW 0.6 trillion investment will be made by IBK.The method of investment will be either direct investment through various channels as issuing preferred shares, common shares, long-term corporate bonds, convertible bonds, as well as direct loans, or indirect investment through private funds and private equity funds (PEF). The funds will be available in multiple currencies (won, dollar, yen, euro, etc.) as required by specific projects, and the ratio of public funds being injected will be maintained around 50% of the total investment while the rest will be met by funds from the private sector.The private funds and PEFs eligible for injection of funds will have to meet certain criteria as total size of investment, track record, fees, and a minimum of 90% of funds required to be invested into facility investment. Further eligibility requirements will be set by KDB, IBK, and the Korea Financial Investment Association (KOFIA). KDB and IBK will jointly invest into these funds up to 40% of the total investment mostly through issuing common shares.The funds from KDB will concentrate on facility investments made to new-growth industries, infrastructure projects, long-term investments with higher than normal risk, and other large-scal
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Jul 30, 2009

Corporate Restructuring Progress & Financial Sector’s Non-Performing Loans

An economic policy meeting was convened by the President on July 30 discussing the current progress of corporate restructuring and plans to resolve non-performing loans in the financial sector. The following is a conclusion of those discussions in efforts to promote a smooth and preemptive restructuring for the corporate sector and improvements to facilitate its effectiveness.Corporate Restructuring ProgressA. Industry-Specific RestructuringCreditor bank-led credit assessments were completed on 277 construction and shipbuilding companies (1st round in January and 2nd round in March) and shipping companies (1st round in April and 2nd round in June).46 companies in total were selected for restructuring; 29 construction companies; 7 shipbuilding companies; and 10 shipping companies.Subsequently, progress has been made on the following fronts. 5 companies have completed their workout programs, 18 companies are presently under workout programs, and corporate restoration processes are underway on 23 remaining companies.B. Restructuring of Conglomerates45 conglomerates whose credit facilities account for more than 0.1% of total credit provided by the financial sector were put under separate assessment. 9 of those companies entered into contractual agreements with creditor banks on June.Based on the agreements, subject companies will make every effort to restore market confidence and take stepped-up measures of improving their financial conditions, which include recapitalization and sale of non-core subsidiaries and assets.C. Restructuring of Large Individual CorporationsCreditor banks have carried out credit assessments of large individual companies with credit facilities in excess of KRW 50 billion.In the second round of credit assessment, 433 companies were analyzed, and as a result, 33 companies were targeted for restructuring on June 10. Of the 33 companies, 22 companies were C-rated and 11 companies were D-rated. Workout programs are well underway on subject companies
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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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Jul 16, 2009

State of FX Margin Trading and Plans for Regulatory System Improvement

1. SummaryFX margin trading had gained considerable popularity from retail investors in such countries as Japan and the United States for its advantage of making it possible to invest in the fluctuating currencies of other countries with only a small deposit. But a rise in fraud cases and swindles, and heightened risk to investors caused regulations to be strengthened around related activities.Retail investor interest in FX margin trading also started picking up in Korea in 2008 from a number of factors that included low interest rates and increased currency volatility from the global economic crisis. This has brought to the fore a host of concerns with a spike in related crimes, such as illegal transactions and fraud as well as mounting investor losses.To prevent the equivalent of the ‘Mrs. Watanabe Syndrome’in Japan from taking hold in Korea, the financial supervisory authority will raise domestic investors’awareness of FX margin trading and take measures to ensure the transparency of the market.2. State of FX Margin TradingTransaction VolumeThe volume of transactions increased sharply after currency volatility became amplified after 2008 with contracts approximating KRW361.0 trillion as of end-May 2009. From 2007 to 2008, contracts increased by 594%.Entering 2009, the growth of transaction volume and concentration of transactions to retail investors have been markedly prominent with a low interest rate trend and investor sentiment recovering.The volume of transactions for the first five months of this year already exceeded 85% of all transactions in 2008 while the percentage of transactions by retail investors accounted for 99% of all transactions in 2009, up from 92% in 2008. Trading LossesRetail investor losses have risen noticeably from KRW11.8 billion in 2007 to KRW48.9 billion in 2008 and KRW44.9 billion as of May 2009.Losses are being borne to the vast majority of retail investors as short-term investments are being made without adequate information i
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Jul 15, 2009

Key Financial Policy Issues

This is a summary of the report submitted to the National Policy Committee at a special session of the National Assembly on the most current and pressing key issues in financial policies.There are five key topics on the report:I. Plans to finance green growth related industries (MOSF/FSC – July 6) II. Privatization of Korea Development BankIII. Progress on corporate restructuring (FSS – July 15)IV. Strengthened risk management on mortgage loans (FSS – July 6) V. Amendments to the medical insurance business (FSC – July 1)Relevant announcements or press releases have recently been released through the FSC, FSS, or the MOSF (Ministry of Strategy and Finance). They are available on our website for your reference.The second topic which has not been dealt with previously is covered herein;Privatization of Korea Development Bank (KDB)1. Current stateThe privatization of KDB and the establishment of Korea Public Banking Corporation (KPBC) are well underway. This is to resolve market conflict with private financial companies and conduct policy lending more effectively.A. Related policiesThe National Assembly has agreed to have the KPBC Act established (March 3, 2009) and the KDB Act amended (April 29, 2009). Consequently, relevant laws and decrees were enforced on June 1, 2009.B. KDB spin-off planA committee of members from the FSC, MOSF, MKE, KDB and professionals from the private sector are discussing ways to break up the current KDB into KDB Holding Company, KPBC, and the remaining KDB.Due diligence has been conducted by an accounting firm on two accounts, from March 16 toApril 30 and May 22 to June 5. The spin-off will be based on the projected financial statement as of end-August 2009. KDB is forecast to have assets of KRW 172.2trn, liabilities of KRW 155.0trn, shareholders’ equity of KRW 17.1trn and a BIS ratio of 13.1% as of end-August.Assets will be allocated in a reasonable manner so that KDB can be privatized smoothly and KPBC can conduct public lending e
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Jul 10, 2009

Plans to Advance Financial Infrastructure of Funds Market

Background IssuesEven as the funds market has continued growing in volume and quality, investors’ interest in funds are expected to rise further from a number of factors, such as an aging population.Among other contributing reasons, tax exemptions on overseas stocks and the need to globally diversify private assets caused assets under management to increase sharply at overseas investment funds, climbing from KRW9.1 trillion at end-2005 to KRW54.9 trillion as of June 18 this year.As the availability of asset classes for investment has increased, the variety of funds has also broadened to include real estate, special asset, derivatives and other assets in their funds.But at the same time, the financial infrastructure related to the funds market has been pointed out to have room for improvement.In a few exceptional cases, investors who held overseas investment funds and fund of funds took advantage of other beneficiary owners by buying into a fund with prior information on the direction of stock prices as funds’ base prices are based on the previous day’s closing prices.In other instances, shortfalls in the financial infrastructure related to overseas investment could erode investor confidence as a result of discrepancies in the base price of overseas investment funds.There is also a loss in efficiency as trades, settlement, and the review of assets held in overseas investment funds are conducted manually.Improvement PlansTo raise the level of confidence in the base price and improve the efficiency of fund-related systems, the financial supervisory authorities are to jointly develop the financial infrastructure of the funds market with the funds industry.To prevent buying a fund with foreknowledge in the direction of stock prices, the applicable base price of overseas investment funds and fund of funds will be changed from the current T+1 day to T+2 days. To prevent the frequent resetting of the base price, the current base price tolerance will be adjusted after
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Jul 09, 2009

Countermeasures for Recent Cyber Attacks on Financial Companies

Recent cyber attacks from July 7 to 9 made on seven domestic banks briefly delayed or halted their personal internet banking services, but there were no illegal money transfers that took place and no confidential or private information leaked out during the attacks.Currently, all banking systems are back to normal, working in full capacity, including personal internet banking services.The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have detected the cyber attacks (program name: ‘DDoS’) through the Electronic Financial Emergency System and acted swiftly by running a cyber attack countermeasure system at banks and at the Korea Financial Telecommunications and Clearings Institute (KFTC) which minimized any potential damage.An Emergency Countermeasure Task Force was formed between the FSC/FSS, and the KFTC to closely monitor any suspicious activities or signs of further attack. The team will be headed by the Director General of FSC’s Planning Coordination Bureau.All banks and financial companies were alerted and directed to run a 24-hour emergency monitoring system as of yesterday.* Please refer to the attached PDF for details.
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Jul 06, 2009

Plans to Finance Green Growth Related Industries

The Korean government plans to promote investment in green growth related industries. The plan is aimed at creating funds fit for the industries and expanding sources of financing as a way to prevent potential bubble in the industries.BackgroundBoth financing in the financial market and by the government are not fit for green growth related industries because 1) projects in the industries have a lot of uncertainties, 2) it will take long to realize return on investment in those projects, and 3) the external benefit is larger than that of other projects.Directions of the planTo attract private investment, the government decided to remove uncertainties: The government will introduce a certification system to approve green technologies and projects, and verify companies involved in green growth related projects as “green enterprises” if they qualify for government’s requirements.The planThe plan is formulated on the basis of the three stages of development.Stage 1: RD and commercializationTo promote RD projects and their commercialization, the government will increase fiscal support from 2.0 trillion won in 2009 to 2.8 trillion in 2013, along with 300 billion won funds set up by the KDB (Korea Development Bank).SMEs doing projects in stage 1 will access fiscal funds exclusive for them, which will be expanded form 60 billion won in 2009 to 1.1 trillion won in 2013.Credit guarantee offered to “green enterprises” and green projects will also be increased almost three folds from 2.8 trillion won in 2009 to 7 trillion won in 2013.Stage 2: Industries maturingTo boost maturing industries, the “green funds” of 500 billion won will be formed by the KDB and National Pension Fund in the last half of this year, along with long-term deposit products and “green bonds” launched by banks to attract private investors. The government will grant tax incentives on capital gains: no tax on dividend up to 30 million won, among others.Stage 3: Industries fully grownTo suppo
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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 25, 2009

Economic Policy Directions for the Second Half of 2009

Key DirectionsCurrent expansionary policies will continue until clear signs of economic turnaround are apparent, given uncertainties surrounding the economy. However, temporary measures will be reviewed in terms of their impact on the economy, and subject to be withdrawn when they expire. Real estate markets will be under close scrutiny, and any signs of market instability are sure to be responded to in advance with appropriate measures, in particular mortgage loans with tighter provisions. (According to the press briefing given on June 24, the Korean economy saw better-than-projected real GDP growth in the second half of 2009, registering a 1.7 percent increase from the previous quarter, while 0.7 percent growth was forecast originally.)The current policies concerning job creation and public welfare will continue to be pursued in the second half, but their impact and effectiveness will be reviewed. In this respect, supplementary budget spending, measures for promoting the service sector promotion and supporting business startups, and programs for training human resources will be put under evaluation.Market fund flows will be improved so that rich liquidity can move smoothly into the real sector. Long-term funding, such as MA funds and early IPOs of public companies, will be encouraged. Non-performing loans in the financial sector will be purchased through the KRW40 trillion Restructuring Fund.On-going corporate reform efforts will definitely be made: Creditor-led corporate restructuring at all times, early removal of bad loans in the financial sector, and more flexible job markets with improved labor-management relations. Relaxed lending conditions and expanded credit limits will be removed if the financial market stabilizes state-owned agencies are obliged to make on-going efforts to improve their management efficiency, and those subject to privatization will be prepared for it.The government will boost its efforts to raise the nation’s growth potential to prepa
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Jun 22, 2009

Restructuring Plan for SMEs

BackgroundTogether with large companies with debts of more than KRW50 billion, the companies in construction, shipbuilding and shipping industries are now under a full-fledged restructuring process as credit risk assessment have wrapped up on them. SMEs will also be subjected to restructuring programs through creditor bank-led credit risk assessment.Restructuring ScheduleThe credit risk assessment will be conducted on SMEs in order according to the size of their debts given a large number of firms involved and limited information available for them.The first round of credit assessment will be completed by July 15 on SMEs which have KRW5.0 billion or more in borrowing and are required to have external audit. This includes 5,214 basic assessment target companies out of a total of 10,738 SMEs, excluding public and special purpose corporations, and confirmed 861 companies as detailed assessment target companies according to the following financial factors; 3-year operating cash flow deficit, 3-year interest coverage ratio below 1, precautionary and below companies.The second round of credit risk assessment, which will be finished by the end of September, will center on SMEs that have between KRW3.0 billion and KRW5.0 billion in borrowing and are subject to external audit. Unlike the first round of assessment where only financial factors were considered, the second round is expected to include qualitative factors such as the level of delinquencies, discounted bills, and uncommitted overdraft rates. Qualitative factors will also be applied to companies that underwent the first round of assessment for inclusion in the in-depth assessment.The third round of credit risk assessment is due to be completed by the end of November this year. The assessment will include companies that are not subject to external audit or sole proprietorships with more than KRW 3.0 billion in debt, and those that have between KRW1.0-3.0 billion in debt and are subject to external audit.Each credito
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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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Jun 11, 2009

Corporate Credit Assessment Results

18 creditor banks have carried out regular assessments of large individual companies with credit facilities in excess of KRW 50 billion sinceApril. In the second stage of the credit assessments, 433 companies were analyzed, and as a result, 33 companies are targeted for restructuring.Of the 33 companies, 22 companies are C-rated which will accept creditor-led workout programs, and 11 companies are D-rated which will have to develop self-normalization efforts and apply for corporate restoration process.Compared to the results from regular credit assessments in previous years*, this year there has been a large increase of companies that are up for restructuring. This is believed to have been resulted from creditor banks’ active efforts for restructuring.*2006/07/08: 3, 7, and 0 respectivelyThe total sum of credit facilities rendered to the 33 selected companies amounts to KRW 3.4 trillion. An increase of KRW 980 billion* of additional loan loss provisioning is expected within the financial sector.*Banks/Mutual savings banks/Credit specialized companies: KRW 830bn, 30bn, 20bn respectivelyThe assessments were originally planned to be completed by the end of June, but have been finalized earlier than expected to speed up the restructuring process. Consequently, the Mediation Committee for Creditor Financial Institutions will head the accelerated process of workout programs on selected companies to normalize operation as soon as possible.Creditor banks will start conducting credit assessments of corporations with credit facilities under KRW 50 billion in July. The Corporate Credit Support Task Force will oversee the operation to ensure that the ongoing restructuring process goes as smoothly and effectively as possible.Please be aware that, to minimize disruptions in regular operational activities of the companies that will undergo restructuring, their identities are not revealed.* Please refer to the attached PDF for details.
Attachment 1