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Sep 12, 2002
- Improved Financial Structure of Domestic Companies Listed in KSE and KOSDAQ Five Year After the 1997 Financial Crisis
- A recent FSC/FSS analysis on the financial structure of domestic companies publicly traded in the Korea Stock Exchange (KSE) and the KOSDAQ showed an overall improvement in debt-to-equity ratios, financial expenses, and profitability in the past five years following the 1997 Asian financial crisis.The analysis indicated that, as of the end of March this year, the debt-to-equity ratio of KSE- and KOSDAQ-traded manufacturing companies had fallen to 174.4% from368.6% at the end of 1997, a level comparable to that found in most leading economies and a clear sign of the financial stability of domestic companies. The principal causes for these positive developments can be traced to the large capital increases through stock issuance during 1998 to 1999 and increases in cash reserves and retained earnings driven by profit-focused business management and strategies beginning in 2001.The drop in net financial expenses -to -sales ratio of domestic companies—from 5.1% at the end of 1997 to 3.1% at the end of the first quarter of 2002 on the back of improved financial strength—was one of the key reasons behind the recent surge in corporate profitability.The emerging trend toward financial stability and improving profitability of domestic companies has been particularly striking in the first half of this year, and there are reasons to believe that this trend is not a temporary phenomenon, but a reflection of the strength of fundamentally restructured domestic companies.As shown in the table below, a comparison of the debt-to-equity ratio, interest coverage ratio, and operating income-to-sales ratio of KSE- and KOSDAQ-traded companies (excluding financial service companies) for the first half of this year versus the first half of 2001 clearly points to the significantly improved profitability and debt-servicing ability of domestic companies.It is also noteworthy that, unlike in the past when corporate profitability was often exaggerated by the sheer size of businesses, the rec
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Aug 14, 2002
- Investigation Findings and Disciplinary Action against UBS Warburg and Merrill Lynch Seoul Branch Offices
- The FSS conducted partial on-site examinations of the local branches of Merrill Lynch from April 19 to May 10 and UBS Warburg from May 21 to June 17 to investigate allegations of improper disclosures by analysts at these two branches. After a thorough review of the findings, on August 13, 2002, the FSS decided to take following disciplinary action against the subject firms and analysts for a number of violations that have been found through the investigation. These measures will be officially enforced after the FSC approval on Friday, the 16th.- The Seoul Branch of UBS Warburg will receive a “severe disciplinary warning,” which means, in case of a repeated violation, the company can be subject to a business suspension.- The Seoul Branch of Merrill Lynch will receive a “disciplinary warning,” one step below the “severe disciplinary warning.” - UBS Warburg: 15 employees in total, will be penalized, one of whom will receive a severe disciplinary warning, one a suspension of business activity for a limited period of time, four a salary reduction, and the remaining nine a censure.- Merrill Lynch: 6 employees will be penalized; one will receive a suspension of business activity, one a salary reduction, and the remaining four a censure.* This is the first time since its foundation that the FSS has imposed sanctions against branch offices of foreign securities firms and their individual staff of measures above a salary reduction.The FSS will continue to carry out investigations on both domestic and foreign securities firms for any possible unlawful business conduct in order to reinforce market discipline.* Please refer to the attached PDF for details.
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May 09, 2002
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Apr 30, 2002
- A Cooperative MOU between the Market Watchdogs of Korea and France Was Signed in Paris
- A cooperative MOU between the market watchdogs of Korea and France was signed in Paris.The FSC signed a cooperative MOU on April 30, 2002 in Paris, with the Commission des operations de bourse (COB), the Market supervisory authority of the Republic of France. This MOU, signed by Standing Commissioner of the FSC, and Chairman of the COB, will provide a basis to set up and implement a system for mutual assistance and exchange of information between both authorities in order to facilitate the performance of the functions they are entrusted with in the fields of investor protection and market discipline.The conclusion of the MOU is in line with the recommendations made by international organizations such as the BIS and IOSCO, for mutual cooperation between supervisory authorities, whose jurisdictions have cross-border financial institutions. The FSC has been an active participant of international regulators’ meetings since its establishment in 1998 and has formed MOUs (or high-level dialogue agreements) with supervisors in several jurisdictions including the U.K., Germany, Japan, China, and Vietnam.Following the signing ceremony, Standing Commissioner YANG, Cheon-Sik had a meeting with Chairman Michel Prada, to exchange their views on both countries’ financial supervisory systems. Mr. Yang is also scheduled to meet with officials from the French bank supervisory agency, Commission Bancaire (CB), to discuss ways of concluding a cooperative tie.* Please refer to the attached PDF for details.
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Apr 25, 2002
- High-Level Dialogue between the FSA of the U.K. and the FSC/FSS of Korea held in Seoul
- The third annual high-level bilateral dialogue between the Financial Services Authority (FSA) of the U.K., and the Financial Supervisory Commission (FSC) and the Financial Supervisory Service (FSS) of Korea was held in Seoul, Korea, on April 24. Mr. Howard Davies, the Chairman of the FSA, led the U.K. delegation to Korea. Mr. Keun-Young Lee, the Chairman/Governor of the FSC/FSS led the FSC/FSS. The bilateral dialogue covered recent regulatory approaches and this year’s supervisory agenda of both countries as well as specific supervisory issues relating to Korean financial institutions operating in the U.K., and the U.K. financial institutions operating in Korea. The meeting also included discussions on the New Basel Accord planned to be introduced in 2006, consumer protection, supervisory issues related to e-money, and investigation of unfair securities trading. The meeting was very successful with both supervisory authorities agreeing to maintain a close dialogue on regulatory developments in both countries. The next high-level dialogue is set to be held in London in 2003. * Please refer to the attached file for details.
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Apr 15, 2002
- Removal of 5 Banks from Prompt Corrective Action (PCA)
- During the second phase of financial restructuring in the latter half of 2000, the government and FSC/FSS provided and pursued management normalization plans for eight banks under PCA (Korea Exchange, Chohung, Hanvit, Peace Bank of Korea, Cheju, Kyongnam, Kwangju and Seoul) based on the evaluation results of the ad hoc management evaluation committee. Following a recent evaluation of these banks’ performance since the plans were implemented – excluding Peace Bank, whose banking business was merged into Hanvit Bank in late 2001 – the FSC/FSS concluded 5 of these banks would be removed from PCA. As part of their normalization plans, 6 of the 8 banks excluding Korea Exchange Bank and Chohung Bank underwent a complete capital reduction. Afterward, they were injected with a second round of public funds in the form of equity participation in December 2000 and capital contributions in September 2001, totaling 7.1 trillion won. As a result of the second phase of restructuring in the banking sector, management performance of these banks such as financial soundness significantly improved through injection of public funds and self-restructuring efforts. A foundation of “clean banks” has been established through clearance of large amounts of ailing assets, and stabilization of financial markets and restoration of the intermediary function of financial companies have contributed to the recovery of the real economy. The evaluation of the 8 banks’ overall performance as of the end of 2001 by the FSC/FSS included a comprehensive review of these banks’ satisfaction of the basic requirements for removal from PCA such as a minimum BIS capital adequacy ratio of 8% and a grade 3 or higher on the CAMELS evaluation, as well as their management improvements such as advancements in corporate governance and introduction of a risk management system. The FSC/FSS concluded from the evaluation results that 5 banks (Korea Exchange, Chohung, Hanvit, Kyungnam and Kwangju) would be rem
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Mar 21, 2002
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Dec 11, 2001
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Dec 05, 2001
- Bad Loans Fall in the 3rd Quarter of 2001
- For the third quarter ending September 30, 2001, the total amount of substandard or below loans (SBLs) at 1,557 financial companies stood at 46.3 trillion won, a drop of 3.5 trillion won (7.0%) from the 49.8 trillion won recorded at the end of the second quarter ending June 30, 2001. The net amount of SBLs— total SBLs less total loan loss provisions— also fell 1.4 trillion won to 22.2 trillion won. As a result, the proportion of SBLs to total loans fell 0.7 percentage points from 8% to 7.3%, and the ratio of net SBLs to net total loans (total loans less loan loss provisions) fell 0.3 percentage points from 4.0% to 3.7% during the period. The total amount of non-performing loans (NPLs)—the sum of loans 3 months or more past due as well as loans in nonaccrual status—also fell 1.6 trillion won to 37.9 trillion won during the period.Overall, the third quarter drop in SBLs was mainly due to the continued disposal of bad loans through asset-backed securitization (ABS), extensive write-offs and loan recovery. During the period, domestic lenders disposed of 3.3 trillion won in SBL through ABS, wrote off 2.9 trillion won, and recovered an amount of 1.9 trillion won.By lender, banks accounted for 27.4 trillion won (59.2%) of the 46.3 trillion won in total SBLs and were followed by non-banking lenders with 12.2 trillion won (26.3%). Insurance and securities companies accounted for 2.9 trillion won (6.3%) and 3.8 trillion won (8.2%), respectively.In addition, domestic banks recorded the lowest ratio of SBLs at 5.0%, followed by insurance companies at 6.5%, non-banking lenders at 30.0% and securities companies at 54.3%.BanksAs of the end of the third quarter, 22 commercial and specialized banks held 27.4 trillion won in SBLs, which also reflects all potential losses as defined under Forward Looking Criteria (FLC). This is 2.8 trillion won less than the total amount at the end of the previous quarter, and a decrease from 5.7% to 5.0% in the proportion of SBLs to total loa
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May 22, 2001
- High-Level Dialogue between FSA of the UK and FSC/FSS of Korea Held in Seoul
- The second annual high-level bilateral meeting between the Financial Services Authority (FSA) of the UK, and the Financial Supervisory Commission (FSC) and the Financial Supervisory Service (FSS) of Korea was held in Seoul, Korea on May 21-22. Mr. Keun-Young Lee, Chairman/Governor of the FSC/FSS, and Mr. Michael Foot, Managing Director of the FSA, led the delegation of each authority. The discussions covered recent developments in the integration of financial supervisory systems in both countries, as well as specific supervisory issues relating to Korean financial institutions operating in the UK, and the UK financial institutions operating in Korea. The meeting also included discussions between the two authorities on a new risk assessment model, preparations for the introduction of the New Basel Accord in 2004, and the regulatory implications of the recent trends towards financial consolidation and electronic finance. The meeting was very successful with both sides agreeing to maintain a close dialogue on regulatory developments in the UK and Korea. The next high-level dialogue will be held in London in 2002. * Please refer to the attached file for details.
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Apr 13, 2001
- The Major Policy Objectives of FSC for 2001
- 1. Main Policy Direction The financial industry is increasingly shaping the back-bone of knowledge-based economy of the 21st century of global and digital age. Fully recognizing such trend, financial regulatory authorities have taken policy directions which are to ensure strengthening the financial industry for the stable and sound financial markets and future economic growth. Accordingly, the government has shifted its focus from government-led restructuring policies to market-oriented approaches for continuous restructuring financial markets. Further, financial institutions will be encouraged to be more actively engaged in “software” reform to strengthen profitability and competitiveness. 2. Continuous Financial and Corporate Restructuring Reform in the Financial Sector• Preventive Supervisory and Prompt Corrective Action Measures: The terms and conditions of Management Improvement Arrangement, which is to be signed between ailing financial institutions and authorities, will be intensified to prevent managerial risk before PCA is enforced. • Continuing Reduction of Bad Loans: By monitoring commercial banks’ progress, on quarterly basis, with their efforts to reduce the ratio of substandard and below to total loans to the targeted 5% or below by the end of this year• Bank Mergers Among Sound Banks: To be more globally competitive by achieving greater economies of scale and by creating universal banking system The merger trend has been set off by the financial holding company and the merger between Kookmin Bank and Housing Commercial Bank (HCB), and other banks are encouraged to follow suit. Reform in the Corporate Sector• Effective Credit Risk Evaluation: To activate the corporate credit risk assessment system in full scale, by which creditor banks can assess credit risk of each of their debtor companies for the prevention of further increase of ailing assets, and, when necessary, for the timely exit of non-viable companies from the market The monthly
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Mar 20, 2001
- Response to News Media Reports Concerning Financial Aid to Hyundai Group
- In response to several news media reports that the decision by Hyundai creditor banks to provide additional liquidity support to Hyundai Electronics Industries Co. (HEI), Hyundai Engineering and Construction Co. (HEC), and other Hyundai subsidiaries amounted to the granting of special favors to the Hyundai Group, the FSS verified the following issues with the creditor banks:1. Financial Support to HEI and Progress of Self-Rescue PlanUnder a mutual agreement, the financial support to be provided by the creditor banks to HEI can be divided into loans under credit lines, ordinary loans and credit access, and syndicated loans.During a series of meeting held between late-November 2000 and mid-March 2001, the creditor banks agreed to restore HEI’s credit lines up to previous limits. For ordinary loans and credit access, the creditor banks sought to resolve the liquidity shortages experienced by HEI through extension of debt maturity.However, due to protracted disagreements among several creditor banks over their share of liquidity support, the creditor banks convened an emergency meeting on March 10th in order to resolve their differences and strike a new agreement concerning the portion of liquidity support to be provided by each creditor bank.With regard to the syndicated loan that was lead-managed by Citibank and announced on November 28, 2000, it should be noted that only KRW 800 billion of the original target of KRW 1 trillion was successfully raised due to the non-participation of several creditor banks. The decision to proceed with raising the remaining KRW 200 billion is entirely up to Citibank as the lead manager of the syndicated loan. The FSSneither participated in the March 10th creditor bank meeting nor engaged in any discussions in regard to the meeting.Meanwhile, the decision by creditor banks to provide liquidity support to HEI was made on the strict condition that it would fully execute the self-rehabilitation plan announced by the Hyundai Group in Janu
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Mar 15, 2001
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Mar 13, 2001
- Response to Media Coverage on Hyundai Group Companies
- On Saturday, March 10, creditor banks to the Hyundai Group convened an emergency meeting with executives from Hyundai Electronics Industries, Hyundai Engineering Construction, Hyundai Petrochemical, and Hyundai’s financial advisor, Salomon Smith Barney, in order to discuss liquidity problems facing the Hyundai units and to determine feasible methods to resolve them. During the meeting, the participants reaffirmed the viability of the concerned companies and reviewed the progress of self-rescue plans that are being implemented at each firm. In addition, the creditor banks reaffirmed and finalized each bank’s share of liquidity support to Hyundai subsidiaries, which had been agreed upon a few months ago.At the request of the creditor banks, FSS representatives attended the meeting only to ensure the implementation of follow-up measures by the creditor banks and the Hyundai units, and not to influence the creditor banks or their decision to extend additional credits to the Hyundai companies.1. The purpose of the meeting The purpose of the meeting was to adjust and finalize the already agreed specific share of liquidity support to be assumed by each creditor bank, and to devise a timely implementation plan that could mitigate market uncertainties surrounding the companies; it was not to extend additional loans. Between January and March 2001, the creditor banks had already agreed to raise the purchase limit on export bills (on D/A basis) by US$ 600 million for Hyundai Electronics Co. and to provide US$ 400 million in credit guarantees to Hyundai Engineering and Construction Co. However, both companies have been suffering from liquidity shortages due to disagreements among the creditor banks concerning the relative share of liquidity support that each creditor bank had to assume. 2. The criticism of government interferenceWith respect to the Hyundai Group, the creditor banks voluntarily held numerous meetings in the past and agreed to provide financial support to Hyu
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Dec 22, 2000
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Dec 20, 2000
- Complete Capital Reduction was ordered to the 6 banks prior to capital injection by the KDIC
- 1. Conditional approval of 5 banks’ revised self-rescue planAfter reviewing the revised self-rescue plan submitted by Hanvit, Peace, Kwangju, Cheju, and Kyongnam banks, the authorities approved their plan under the condition that they be included as subsidiaries of a government (KDIC) led financial holding company.However, the authorities will also approve mergers with or integration to other sound banks for Peace, Kwangju, Cheju, and Kyongnam bank if they decide to do so. In order to be approved, both designated and partner banks must submit their specific merger/integration plan, which includes MOU, to the FSC before the KDIC starts capital injection. Meanwhile, partner banks are required to be a nation-wide bank with their BIS ratios of 8% or higher as of end-September, 2000.2. The authorities requested KDIC to put capital injection to 6 banks The recent due diligence conducted by the FSS on the six banks (above-mentioned banks and Seoul Bank) confirmed that each of the 6 banks’ liabilities exceeded their assets. Therefore, they are officially designated as ‘ailing financial institutions’ according the relevant financial restructuring laws, and subsequently, KDIC is requested of additional capital injection to the designated banks.The total amount of capital to be injected will be estimated based on the actual and expected losses from selling-off bad loans (substandard and below) of the 6 banks. The main objective is to lower the ratio of substandard and below loans to their total loans to less than 6% and to raise their BIS ratios to more than 10%. 3. Complete capital reduction order Complete capital reduction was ordered to the six banks prior to public fund injection. The shareholders will be granted of rights to demand the banks to purchase their shares at the price stipulated in the relevant laws.* Please refer to the attached file for details.
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Dec 07, 2000
- Policy Directions for 2nd Stage of Banking Sector Restructuring
- In line with plans to complete the second phase of financial sector reform, the government is accelerating the pace of banking sector restructuring by actively promoting the creation of bank financial holding companies and consolidation among healthier banks by the end of 2000. The measures are being taken in order to lay foundations for a world-class and internationally competitive financial system in Korea.1. BackgroundSince the beginning of Korea’s financial crisis in late-1997, the number of banks operating in Korea has been reduced to 22 from 33 by PA and mergers as of end-November 2000.The government is pursuing the second stage of financial restructuring with a focus on strengthening the competitiveness of the domestic financial industry by clearing up ailing assets such as non-performing loans and implementing forward-looking reforms based on the results of the initial stage of financial restructuring.2. Policy Directions for 2n d Stage of Banking Sector RestructuringIntroduction of Financial Holding CompaniesBased on the assessment by the independent Management Evaluation Committee (MEC), Hanvit Bank, Peace Bank of Korea, Kwangju Bank and Cheju Bank were judged to be not self-sustainable. Consequently, these four banks and Kyongnam Bank, which was under a management improvement requirement, will be subject to inclusion as a subsidiary of a government-led FHC in accordance with the policy directions reported to the Tripartite Commission of government, management and labor on July 12, 2000.To promote increased consolidation in the domestic banking sector, the government may also offer priority approval to sound banks and regional banks if they are willing to be voluntarily integrated as an FHC. Banks wishing to join the government-led FHC will be included in the FHC if it will contribute to the formation of a large and financially sound “leading” bank.Presently, the government plans to launch its FHC during the first quarter of 2001 and subsequently res
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Nov 20, 2000
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Nov 09, 2000
- FSC/FSS Announces Management Improvement Measures for 6 Banks
- Based on the assessment of management improvement plans for 6 commercial banks by the independent Management Evaluation Committee (MEC), the FSC/FSS announced management improvement measures for the banks on November 8, 2000.The 6 ailing banks were ordered to submit management improvement plans to the MEC because they had posted a BIS capital adequacy ratio below 8% as of end-June 2000 or had received direct injections of public funds. Moreover, the banks were also subject to Prompt Corrective Action, and either Management Improvement Recommendations or Management Improvement Requirements.According to the results of the evaluation, Chohung Bank and Korea Exchange Bank were deemed as being conditionally self-sustainable, while Hanvit Bank, Peace Bank of Korea, Kwangju Bank and Cheju Bank were deemed as being not self-sustainable. Therefore, the FSC approved Management Improvement Plans submitted by Chohung and Korea Exchange Banks with the reservations as suggested by the MEC, but rejected the plans submitted by the latter four banks.Details of Management Improvement MeasuresIn line with the evaluation results, Chohung Bank and Korea Exchange Bank have been ordered to submit revised action plans that conform to the MEC’s following suggestions by November 22, 2000. In the case that the banks fail to submit or implement the revised action plans, or if FSS deems submitted plans as inadequate, they will be subject to enforcement of stricter management improvement measures including stiffened PCA procedures.Suggestions for Chohung Bank:- Maintain ratio of substandard or below loans to total loans at 6 % or lower by the end-June 2001, and 4% or lower by end-2001, through the swift and resolute clean up of all non-performing assets;- Achieve per-employee operating income before loan-loss provisioning of 220 million won or more for the fiscal year 2001Suggestions for Korea Exchange Bank:- Ensure capital increase by taking supplementary measures such as the sale of its owne
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Nov 09, 2000
- Evaluation Results of 6 banks self-rescue plans
- I. Measures to the six banks which submitted the management improvement plans□ Based on the MEC's review results of the plans, proper measures will be taken in accordance with the relevant regulations. □ Self-rescue plans of Chohung Bank and the Korean Exchange Bank were approved with a condition to make some required revisions in accordance with the relevant financial sector restructuring laws and bank supervisory regulations.o While allowing independent management, the MEC required Chohung Bank and the KEB to submit their revised plans which include the committee's recommendations by the 22nd of November, 2000.o If they fail to either submit or implement the revised plans, or if the plans are disapproved by the Governor of the FSS, certain corrective actions will be enforced in accordance with the relevant laws and regulations. MEC's recommendations for Chohung Bank (1) To lower the ratio of loans which are substandard and below down to lower than 6% by the end of June, 2001, and further down to 4% by the end of 2001 through vigorous and prompt settlement of NPLs.(2) To achieve the per capita operational profit before loan loss provisioning of more than 220million won by 2001, through numerous efforts such as expanding profitability and down sizing.* per capita operational profit before loan loss provisioning : (operational profit + loan loss provisioning expenses) / total number of employees MEC's recommendations for Korea Exchange Bank (1) To take complementary measures such as additional sell-off of the shares of KEB Card Co. and issuance of subordinate bonds will be sought in case the capital increase through public subscription (completion of the paying up shares) can't be done by the first half of 2001.(2) To reduce the ratio of loans which are substandard and below down to lower than 6% by the end of June, 2001, and further down to 4% by the end of 2001 through vigorous and prompt settlement of NPLs.(3) To meet the target profitability by 2001, through
