Press Releases - Financial Services Commission

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Jun 08, 2016

Restructuring Plan for Shipping & Shipbuilding Industries and Measures for Recapitalization of Policy Banks

The government held a ministerial meeting chaired by Deputy Prime Minister to discuss restructuring plans for shipping shipbuilding industries and measures to boost capital at state-run banks to fund the restructuring. I. Restructuring of Shipping Shipbuilding Industries [1] Shipping Industry▪ Hyundai Merchant Marine (HMM) The creditor group agreed on the company’s debt restructuring proposal on condition that HMM would successfully conclude its negotiations with bond holders and shipowners; and HMM would join a shipping alliance. HMM already gained bond holders’ approval for its debt restructuring proposal; and is expected to conclude its negotiations with shipowners on its chartered rates by this week. The government plans to keep supporting HMM to join the Alliance. ▪ Hanjin Shipping Hanjin is now undergoing negotiations with 22 shipowners on charter rates and planning to meet with bond holders to restructure its debt. Hanjin is required to make its self-rescue efforts to secure liquidity as HMM did, while the government keeps supporting the company get back on track. [2] Shipbuilding Industry The ‘Big Three’ – Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding Marine Engineering – have prepared self-rescue plans in case of further slumps and economic downturn.▪ Hyundai Heavy Industries (HHI) HHI plans to raise KRW3.5 trillion by selling non-core assets, streamlining management and reshuffling businesses. Creditor banks evaluate that HHI’s self-rescue plan will be able to withstand further cuts in orders than current estimates. ▪ Samsung Heavy Industries (SHI) SHI prepared its self-rescue plan of KRW1.5 trillion including measures to secure liquidity such as issuance of asset-backed securities or paid-in capital increase. Although SHI’s self-rescue plan is relatively small in size, creditor banks view the plan is appropriate in that it includes the liquidity measures.▪ Daewoo Shipbuilding Marine Engineering (DSME)
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May 24, 2016

Test Operation of Omnibus Account

The FSC/FSS and relevant agencies will launch a test operation of ‘omnibus account’ starting from May 25 with four standing proxies, two securities firms and one global financial investment company. The test run is (i) to have foreign investors engage in devising detailed procedures; and (ii) to prevent technical errors in electronic and settlement system in advance of a full operation of the omnibus account system in 2017. The test operation will be proceeding in two stages: ▪ [stage 1] Mock Trading (May 25~Sept. 2016) Participants will process a whole procedure of order, settlement and ex-post reporting through a mock trading system to check detailed operation process and stability of electronic system. ▪ [stage 2] Real Trading (Sept. 2016~before an official operation scheduled in 2017) A limited number of participants including global investors who participated in mock trading will conduct real trading through an ‘omnibus account.’ The FSC/FSS will gather their suggestions in the process of the stage 2 and amend the system until the full operation in 2017. The FSC/FSS will reflect suggestions gathered from global investors in the process of the test operation into detailed procedures of the omnibus account system; and help more global investors participate in each stage of the test run. FREQUENTLY ASKED QUESTIONS ABOUT OMNIBUS ACCOUNT Test Operation of Omnibus Account1. Why are you conducting the test run through mock trading, not real trading? - Given the nature of an ‘omnibus account’ which enables a consolidated processing of trading orders and settlements from multiple investors, detailed settlement procedures may differ according to each financial institution. If the omnibus account were testes in real trading from the beginning, it might incur losses to investors accruing from settlement errors. - The test operation will be conducted through mock trading based on various scenarios to minimize any possibility of settlement errors. We are plan
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Apr 26, 2016

Corporate Restructuring Plan

The government outlined its plan for restructuring vulnerable industries and financially-distressed companiesTHREE-TRACK PLANCorporate restructuring will be proceeding on three tracks simultaneously. - [TRACK 1] RESTRUCTURING OF CYCLICALLY-VULNERABLE INDUSTRIESThe consultative body of government officials sets a direction for restructuring; and creditor groups proceed with restructuring of individual companies in line with the direction. - [TRACK 2] RESTRUCTURING OF MAIN DEBTOR GROUPS INDIVIDUAL COMPANIES (RATED C OR D) ON A CONTINUOUS BASIS Companies are to be sorted out through credit evaluations on a regular basis* to be put under a debt restructuring agreement, a workout or a court receivership. * Main debtor groups (April~June), large companies (April~July), SMEs (July~October) - [TRACK 3] PREEMPTIVE RESTRUCTURING OF OVER-SUPPLIED INDUSTRIES Industries with overcapacity will be encouraged to carry out voluntary and preemptive restructuring and reshuffling through MAs and facilities reduction. DETAILED PLANS FOR SHIPBUILDING SHIPPING INDUSTRIESSince October 2015, the government has been pushing through restructuring of five major industries vulnerable to a global slowdown to reduce overcapacity and boost long-term competitiveness. After reviewing progress in restructuring of these industries, the government has decided to push harder restructuring of shipbuilding and shipping industries as their business conditions have continuously deteriorated. 1. SHIPBUILDING ‘Big 3’ Shipbuilders - Daewoo Shipbuilding Marine Engineering (DSME) DSME will be required to submit to creditors a stronger self-rescue plan including additional layoffs and cost savings. - Hyundai /Samsung Heavy Industries Creditor banks will ask self-rescue plans and check progress in implementation of such plans.2. SHIPPING - Hyundai Merchant Marine (HMM) To be provided with support for business normalization from creditors, HMM is required to strike a deal with ship owners to lower charter rates
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Mar 24, 2016

Plan to Stimulate Financial Advisory Services

The FSC outlined its plan to stimulate financial advisory services in response to growing demand of financial consumers for more accessible and more tailored financial advisory services. The plan is mainly focused on offering financial consumers comprehensive advisory services in a professional and independent manner; facilitating more innovative and affordable advisory services such as robo-advisers; and making financial advice more accessible and more convenient for financial consumers. 1. Lowering barriers to entry for financial advisersUnder the current Financial Investment Services and Capital Markets Act (FSCMA), the minimum capital requirement is KRW500 million for registration as a financial adviser to provide advisory services for retail investors. The FSC will propose amendments to the Enforcement Decree of the FSCMA in the first half of this year to create a new registration category for financial advisers who offer advisory services only in a restricted range of financial products such as savings, funds and derivative-linked securities and lower capital requirement for them to KRW100 million. Banks will be also allowed to offer financial advice within the newly-created category of advisory services; however, they will be prohibited from offering financial advice in equities, bonds and derivatives, due to a possible conflict of interest. 2. Introduction of Independent Financial Advisers (IFAs)Independent Financial Advisers (IFAs) will be newly introduced to provide ‘independent’ advice, free from product providers. The IFAs are required to meet strict standards for independence: 1) they must receive advisory service fees from their clients, not from product providers; 2) they cannot provide financial products concurrently, but discretionary investment business providers are exceptionally allowed to provide both advisory service and products; and 3) they are prohibited from providing advice for specific products, while they are allowed to offer advice
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Jan 14, 2016

2016 Financial Policy Focus #1

PREEMPTIVE MANAGEMENT OF ECONOMIC RISKS The FSC set out its policy plan to manage economic risks facing the Korean economy in a first round of 2016 policy report to President Park Geun-hye on January 14. Policy focus will be on:  managing household and corporate debt proactively;  increasing stability of Korea’s financial market and financial sector; expanding policy support for microfinance, and; strengthening financial consumer protection. 1. Managing household debt The FSC will manage household debt risks under the principle that “debt should be borrowed within the borrower’s repayment ability and paid back in installments from the beginning.” ▪ Banks will adopt stricter standards for screening mortgage applications as newly-established screening guidelines are to be effective from February in Seoul and its metropolitan area, May in provincial areas. We will scrutinize household lending by non-banking sector to prevent tighter constraints in the banking sector from causing a surge in household lending by non-banking sector. ▪ Policy incentives will be devised to stimulate a reverse mortgage scheme.▪ KRW 26trillion will be provided to offer fixed-rate and amortized mortgages. ▪ New financial products will be devised to utilize a pool of key money deposits that tenants get back as they convert their lease to monthly rent so that they can pay their monthly rent with return on such products. 2. Managing corporate debt Preemptive and prompt restructuring will be pushed forward for marginal companies and ailing industries. ▪ Troubled companies will be sort out through credit risk assessment to be placed under a debt workout program or file for court receivership depending on their chances of normalization. ▪ The government agencies will work out industry-wide restructuring for structurally vulnerable sectors such as shipbuilding, shipping, petrochemical, steel and construction industries. ▪ The FSC will encourage more private initiati
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Jan 07, 2016

FSC Holds Meeting over Risk Factors in Financial Markets in 2016

The FSC held a meeting on January 7, Thursday morning with the FSS, KRX and KCIF to examine internal and external risks in financial markets in 2016 and ensure prompt policy responses to stabilize markets if needed.GLOBAL FINANCIAL MARKETSGlobal financial markets started 2016 with increased volatility amid market anxiety over China’s stock market plunge and geopolitical tensions such as the severance of diplomatic relations between Saudi Arabia and Iran and North Korea’s nuclear test. The Federal Reserve’s monetary tightening began in December last year without causing considerable shocks to financial markets; however, the pace of rate hikes and subsequent movements in the dollar still remain uncertain. Uncertainties in the Chinese economy – China’s stock market turmoil and currency depreciation – could also threaten global financial market stability. A series of events in recent few days this year alerted us to a rough year for global economic and financial conditions. The government will remain vigilant on future developments in financial markets to take swift actions if necessary. DOMESTIC FINANCIAL MARKETSKorea’s financial markets are relatively calm in the face of external destabilizing factors. Affected by China’s stock market plunge on January 4, Kospi fell 2.2% on that day but shortly recovered 0.6% on the following day. North Korea’s nuclear test on January 6 did not have large impact on the stock market. However, the government keeps closely monitoring financial market conditions in response to further developments in China’s stock market turmoil and North Korean nuclear issue. POLICY RESPONSEThe FSC will closely monitor foreign capital flows in Korea’s stock market, especially changes in capital flows by advanced countries with the U.S. interest rate hikes and possible capital outflow by fiscally distressed oil-producing countries. We will also push ahead our policy efforts for the inclusion of Korean stock markets in MSCI advanced m
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Dec 16, 2015

FSC-FSS Meeting for Monitoring Financial Market Conditions

The FSC and the FSS held a meeting to make sure that Korea’s financial markets are prepared for the impact of the Fed’s possible rate hike. RECENT TRENDS IN CAPITAL FLOWSThe expectation of a U.S. rate increase weighs on global stock markets. External risk factors prompt volatility in Korea’s financial market with foreigners’ net selling of stocks and investors’ appetite for safer assets. Kospi fell 3.0% in recent days(Dec.1~Dec.15), while the yield on 3-year government bonds dropped 5.2bp in the same period. However, the general market view is that capital outflows would not be expanded sharply, looking into characteristics and causes of recent outflows. In 2015, foreign investors sold an average of KRW 1.7 trillion per month in the stock market, which is less than the net selling of KRW 2.5 trillion per month for the past 10 months and less than the net selling of KRW 2.4 trillion per month in the following months of the so-called ‘taper tantrum’ (March~June 2013). Since September this year, oil producers like Saudi Arabia have been leading foreign net selling as their fiscal conditions deteriorate with falling oil prices. The net selling mode is hardly related to changes in foreign investors’ appetite to Korean stocks. US funds, which represent a largest share of Korea’s stock market(40%), continue to remain net buyers in November and December amid rising possibility of a U.S. interest rate increase. European funds sold a net KRW 10.2 trillion of Korean shares from June to September this year, but the pace of selling has slowed since then. STOCK MARKET The Korean stock market is expected to face turmoil in the short term after the Fed’s decision. However, many investment banks forecast that the Kospi will gradually bounce back to a level of 2,100 or beyond in 2016. Given strong fundamentals of the Korean economy, undervaluation of Korean stocks could appeal to investors once the Fed’s rate hike finally removes uncertainty. The FSC will closel
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Dec 09, 2015

FSC-FSS Meeting for Monitoring Financial Market Conditions

The FSC and the FSS held a joint meeting this morning to monitor and preemptively respond to internal and external risk factors in financial markets amid rising possibility of the Fed’s rate hike at the upcoming FOMC meeting next week. RECENT FINANCIAL MARKET CONDITIONS Externally, stock and bond markets in both developed and developing economies are sluggish as investors remain risk-averse ahead of a possible rate hike this month. Internally, growing uncertainties over the global economy increase volatility in domestic financial markets with net selling of stocks by foreign investors and increased appetite for safer assets.Meanwhile, monetary policy divergence among the world’s central banks will widen with the ECB’s further monetary easing last week and the Fed’s possible increase in the U.S. interest rates next week, which are likely to increase global market volatility. The FSC will keep domestic risk factors in check so that such risks in combination with external factors should not heighten anxiety among market participants. OVERVIEW OF KOREA’S FINANCIAL SECTOR SOUNDNESSFinancial institutions across the sector maintain soundness in their capital adequacy and asset quality. It is unlikely that internal and external risks – e.g. increases in U.S. interest rates or corporate restructuring – undermine the soundness of the financial system. Capital adequacy ratios of financial institutions across the sector have quite improved compared to those at the time of the 2008 global financial crisis to have a greater buffer against external shocks. As of the end of September 2015, financial institutions’ capital adequacy ratios are 2 to 3 times higher than regulatory minimum requirements. Banks’ loan loss coverage ratios, likely to be affected by corporate restructuring, stand at 133.1% as of the end of September this year, which is enough to absorb losses from bad loans. * Ratios of loan loss provision to substandard loans(SBLs): 120.5% (2013), 124.0%(20
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Oct 30, 2015

FSC Improves Prudential Standards Across Financial Services Sectors

The FSC plans to implement prudential regulations in accordance with global standards, while streamlining prudential standards for each sector to prevent regulatory arbitrage across financial services sectors. PRUDENTIAL REGULATIONS IN ACCORDANCE WITH GLOBAL STANDARDS- (BANKS) Regulatory regimes for Domestic Systemically Important Banks (D-SIBs), capital buffers, and Basel Pillar 2 will be implemented from 2016 and gradually strengthened over time. Detailed plans will be set out to adopt Recovery and Resolution Plans (RRP) from the end of 2017. Leverage ratios and Net Stable Funding Ratios (NSFR) are scheduled to be implemented from 2018. - (INSURERS) Consolidated Risk-Based Capital (RBC) and Own Risk Solvency Assessment (ORSA) are scheduled to be implemented in 2016 and 2017 respectively. The FSC is also considering recapitalization plans for insurers in preparation for IFRS4 phase 2 and measures to strengthen credit risk management for off-balance-sheet exposures. - (FINANCIAL GROUPS) The FSC plans to establish a best practice guideline for consolidated supervision over financial groups in 2016 to assess and manage risks by group unit, as the current system is much focused on sector-wide supervision. PRUDENTIAL STANDARDS BY SECTORThe FSC will ease regulations deemed excessive given the purpose of such measures.- (BANKING)Loan-to-deposit (LTD) regulations will be maintained for now , while LTD regulations on foreign banks’ branches will be partially eased. Foreign branches will be allowed to include their long-term borrowings with a maturity longer than one year from headquarter offices in calculation of deposits. The “legal reserve” requirement will be abolished as its regulatory effectiveness has diminished with the introduction of Basel III. - (INSURERS) When deemed necessary preemptive measures for financial soundness, insurance companies will be allowed to issue subordinate bonds. Issuance of hybrid bonds will be permitted whenever necessary to secure so
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Oct 16, 2015

Measures to Boost Competitiveness of Financial Investment Business

1. STRENGTHEN CORPORATE FINANCING FUNCTIONS ‘Comprehensive Financial Investment Business Entities,’ will be allowed to lend up to 100% of their equity capital in corporate credit offering. For credit loans with a maturity of less than one year, prudential regulatory requirements will be eased to levels applied to commercial banks. Brokerage firms specialized in SME financing will be designated to facilitate fundraising activities of SMEs and venture companies such as listings on KONEX or KOSDAQ, bond issuance and public placement of securities. Regulations on private placement of securities for qualified institutional investors (QII) will be eased to allow all companies whose total asset value of less than KRW 2 trillion to issue securities in the private placement. Current regulations permit private placement only to companies with total asset value of less than KRW 500 billion, while prohibiting listed companies, financial institutions and public corporations from issuing securities in the private placement. 2. EXPAND BUSINESS SCOPE OF SECURITIES COMPANIES Comprehensive Financial Investment Business Entities will be allowed to open stock markets for non-listed shares and non-competitive trading markets using prices at KRX for listed stocks. With the implementation of the revised FSCMA, securities firms will be allowed to register as hedge fund managers on condition that they have measures to prevent conflict of interest in place. The FSC will facilitate utilization of securities provided as collateral by securities firms in repo transactions and securities lending to offer more opportunities for profits. 3. ALLEVIATE REGULATORY CONSTRAINTS TO ENCOURAGE DIVERSE SERVICES Requirements for individuals and institutions to qualify for professional investors will be eased to enable more investors with sufficient knowledge to make investments within their own responsibilities. More exemptions will be permitted to the separation of investment banking and brokerage busi
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Aug 07, 2015

Notice for Financial Customers upon Designation of Temporary Holiday on August 14

▪ All financial markets will be closed. Most financial institutions will be closed as well.▪ Financial customers with loans due August 14 can repay their loans on August 17 without overdue interest.In commemoration of the 70th anniversary of the Korean independence, August 14 is designated as temporary holiday. All financial markets including securities and bond markets will be closed. Most financial institutions will be closed as well.* Pleaserefer tothe attachedPDF for details.
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Dec 24, 2014

Revision to Regulation on Supervision of Banking Business

The FSC approved revisions to the Regulation on Supervision of Banking Business including introduction of Liquidity Coverage Ratio(LCR) and changes to calculation of the ratio of Korean-won denominated loans to deposits.KEY REVISIONS1. Introduction of Liquidity Coverage Ratio(LCR)The LCR rules will be implem ented starting from January 1, 2015. The minimum ratio for commercial banks will begin at 80%, which is higher than the Basel III requirement of 60%,given the current liquidity ratio of domestic banks. The ratio will be raised by 5%p per year over the next 4 years to meet 100% in 2019.2. Revisions to calculation of Korean-won denominated loans-to-deposits(LTD) ratioPolicy loans will be exempted from the total amount of loans in calculating loans-to-deposits ratio in order to enhance banks’ capacity to lend and allow greater flexibility in banks’ asset management.Covered bonds with a 5-year maturity or longer will be included the total amount of deposits in order to encourage the issuance of covered bonds and structural soundness of household debt.The revised LTD rule will take effect immediately.*Please refer tothe attached file for details.
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Nov 26, 2014

Plan to Revitalize Korea's Stock Market

OVERVIEWThe FSC announced a set of measures to revitalize the Korean stock market, which has been in a slump in recent years. The benchmark index KOSPI has been hovering around the 2,000-point level since it hit 2,000 points for the first time in 2007. There is not enough supply of newly listed stocks to boost trading. The market infrastructure and trading system are not attractive to investors, compared to the advanced markets.The measures are aimed to address such structural problems of the stock market. First, the FSC will boost stock market trading by allowing the listing of more blue-chip stocks and new derivatives products and by encouraging more active role of institutional investors. Second, the FSC will enhance efficiency of the market infrastructure and trading system. Third, the FSC will strengthen investor protection and trust by improving disclosure rules.MEASURES TO REVITALIZE THE STOCK MARKET1. EXPAND INVESTMENT PRODUCTRevise listing regulation(Revision to the Capital Markets Act in the first half of 2015)In order to encourage the listing of more blue-chip stocks, the FSC will revise listing regulations to incentivize companies to go public such as allowing the issuance of bond with separable warrants and simplifying procedures for dividend payout.Introduce new derivatives products(Revision to the KRX regulation in 2015~2016)The FSC will allow the listing of new derivatives products such as Mini futures and RMB futures in one to two years. The listing of V-index options or ETF futures will be also considered depending on commodity market situation.2. ENLARGE PARTICIPATION OF INSTITUTIONAL INVESTORSCreate a common investment pool for small pension funds (in the first half of 2015)A common investment pool will be set up for smaller private pension funds. Korea Securities Finance Corp and asset management companies will jointly attract and manage investments from universities’ funds and private pension funds of corporations.Enlarge stock investments by
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Jun 18, 2014

FSC Roadmap for Further Development of Korea's Derivatives Market

OVERVIEWThe FSC announced its roadmap for further development of Korea’s derivatives market. The plan has set a clear goal and regulatory principle tailored to each type of derivatives market as follows:- Exchange-traded derivatives market will be developed into a risk-managed market with focus on professional investors through greater autonomy in the market and creation of new markets.- Over-the-counter derivatives market will be grown into a more transparent market with lower trading risk by phasing in central counterparty(CCP) and introducing trade repository (TR) systems.- Derivatives-linked securities market will be fostered into a sound investment market for retail investors by providing more diversified products and making it easier for investors compare and choose products.EXCHANGE-TRADED DERIVATIVES MARKETS[MARKET AUTONOMY]1. Greater autonomy in market operationMarkets will be granted greater autonomy under the condition that it would not undermine stable operation of the markets and investor protection. Details related with market operation such as quotation price units or exercise price of options will be deliberate d and decided by a derivatives market committee within the KRX.Currently, the items of underlying assets for individual equity futures and options are specified by the Derivatives Market Business Regulation of the KRX. The Regulation will be revised to allow automatic listings of equities that meet certain requirements as underlying assets.2. Introduction of new derivatives marketsThe exchange-traded derivatives market has been strictly limited with only 15 products listed on the KRX, while 1,303 products traded on CME in the U.S., 274 on Eurex in Germany and 100 in Japan.Reflecting the trading volume of spot transactions, the FSC will actively introduce new derivatives markets in high demand such as V-KOSPI 200 futures, sector index futures and night time trading of US dollar futures, which will provide professional investors with an instru
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Apr 18, 2014

Enactment of the Regulation on Supervision of Covered Bond Issuance

The FSC approved a draft regulation on Supervision of Covered Bond Issuance, completing a legal framework for covered bond issuance. The Regulation on Supervision of Covered Bond Issuance is enacted to stipulate further details mandated by the Covered Bond Act and its Enforcement Decree.1. Specify qualifications of underlying assetsHome mortgage loans in underlying assets need to be composed of at least 20% of loans with a debt-to-income (DTI) ratio 70% or lower in a bid to contribute to improving structural soundness of household debt. Out of home mortgage loans in underlying assets, fixed-rate loans must account for more than 30%, by which banks would be pushed toward extending more fixed-rate loans.2. Establish standards for evaluation of underlying assetsIn principle, underlying assets in a cover pool are to be evaluated by market prices. In the absence of such prices, the assents can be evaluated by book value computed by international accounting standards. These are to guarantee objective valuations of collateral assets, which will enhance investors’ confidence.3. Require market-making roles of underwritersIssuers are required to register their underwriters’ market-making roles when they file their issuance plan. The requirement is to encourage underwriters to play market-making roles such as offering quotations upon investors’ requests for a certain period of time after the issuance of covered bonds.The Regulation on Supervision of Covered Bond Issuance will take effect on April 23, 2014.*Please refer tothe attachedPDF for details.
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Apr 08, 2014

Enforcement Decree of the Covered Bond Act Approved at Cabinet Meeting

The Enforcement Decree of the Covered Bond Act was approved by the Cabinet today to come into force starting from April 15, 2014. The Enforcement Decree is to stipulate details mandated by the Covered Bond Act such as qualifications for cover assets, evaluation basis and issuance cap.KEY CONTENTS OF THE COV ERED BOND ACT AND ENFORCEMENT DECREE1. Eligible issuersFinancial institutions are required to meet both institutional and eligibility requirements to issue covered bonds.- (institutional requirement) banks, Korea Housing Finance Corporation, Korea Finance Corporation, and other equivalent institutions designated by Enforcement Decree- (eligibility requirement) a financial institution with equity capital of more than KRW 100 billion, a BIS ratio of more than 10%, and risk management system2. Cover PoolThe minimum ratio of collateralization is 105%. Underlying assets in a cover pool need to be evaluated by market prices if there are credible market prices as a reference price. In the absence of market prices, the assets can be evaluated by book value or acquisition prices.- (underlying assets) home mortgage loans, public bonds, ship and aircraft mortgages, high-quality assets with a stable cash flow- (liquid assets) cash, CDs, liquid assets converted into cash within three months- (other assets) recovery from underlying assets, gains earned through management, operation and sales of assets3. Issuance CapCovered bond issuance is limited to 4% of the issuer’s total assets.* Please refer tothe attached PDF for details.
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Nov 25, 2013

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

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

Measures to Normalize Corporate Bond Market

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

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

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

National Happiness Fund To Be Launched

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