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Oct 15, 1998
- FSC`s view on Moody`s review on the Korean banking industry
- - In a recent review on the outlook on the Korean banking system, Moody's cited that despite of earnest efforts undertaken by the government, due to external conditions, corporate bankruptcies, rising unemployment, uncertainties in assets value, credit crunch and high interest rates, there is concern for deterioration of asset quality of Korean banks and concluded that it continues to maintain a negative outlook on its ratings.- However, such content has overlooked most recent efforts including fiscal support extended to troubled banks and near-term prospects toward enhanced liquidity and lower interest rates. Also noteworthy is the statement referring to the possibility of sharp upward adjustment in the size of non-performing loans as a result of the introduction of revised loan classification standards effective July 1, 1998. This statement leads us to believe that the review was based on outdated information and is not in line with underlying circumstances.- As of end-June, 1998, total non-performing loans at financial institutions (banks and non-bank financial institutions) amounted to 63.5 trillion won, 10.2% of total loans. Taking into account revised loan classification standards, which define non-performing loans as loans overdue for a period of 3 months or more, total non-performing loans will increase by a maximum of 7 trillion won to a total of 70.5 trillion won, representing 11.3% of total loans. As such, estimates given in the review do not reflect an accurate representation of actual facts.- In sum, the recent review comes in conflict with the upbeat commentaries received from the IMF and other international institutions with regards to progress made toward Korea's restructuring program, subsequent to a recent series of presentations on the Korean economy in Washington, D.C. and New York.- On October 14th Mr. J. Dodsworth, Senior Resident Representative of IMF Seoul office pointed out at a Korea-EU Business Council meeting that the recent Moody's negat
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Oct 02, 1998
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Sep 28, 1998
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Sep 26, 1998
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Sep 19, 1998
- Merger of the Korea and the Hankuk Guarantee Insurance Co.
- Corporates, large and small, as well as individuals were hit hard by the stagnant domestic economy owing to the current financial turmoil. As a result, Korea Guarantee Insurance Company and Hankuk Fidelity Surety Company have been confronted with the worst management crisis ever since the start of operations.As a way to resolve serious management problems at the two companies and to return to normal operations in a timely manner, the two fidelity/surety insurance companies have decided to merge, aiming at the early recovery of the fidelity/surety insurance function and financial market stabilization.These two companies have decided to join together on an equal basis on November 25, 1998 and will install a merger steering committee to draw up other details and related work plans. On September 12, 1998, Korea and Hankuk had already submitted to the Insurance Supervisory Board a revised rehabilitation plan. It indicates not only merger plan, but also details on liquidity enhancement measures and self-rescue plans that include downsizing of staff and organizational structure, wage-cuts etc.This merger is to be pursued to accomplish the following,o to secure sufficient level of liquidity·uncollected claims will be sold to KAMCO, thereby providing the two companies with the opportunity to secure a sufficient level of liquidity, allowing operations to improve eventually and start recording surplus within the next two years·in several years the merged fidelity/surety insurance company will be able to attain solvencyo to restore public confidence and to continue to provide fidelity/surety insurance services to customers· with the recovery of public confidence, SMEs and individuals especially those lacking the ability to put up collateral will be supported as the merged company will be able to extend new policies to customers and to renew existing policies as usual.o to maximize management efficiency· by merging the two companies, unnecessary competition and an overlap of
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Sep 15, 1998
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Sep 11, 1998
- Merger between the Kookmin & the Korea Long Term Credit bank
- 1. The Highlight of the MergerKookmin Bank (“Kookmin”) and Korea Long Term Credit Bank (“KLB”) exchanged the Memorandum of Understanding and formally announced to proceed with the merger of the two banks at the convention center in the Korea Federation of Banks building on September 11, 1998.Mr. Dal-Ho Song, the President of Kookmin, and Mr. Sei Jong Oh, the President of KLB announced that the two banks have agreed on a voluntary merger to become a “super bank” which will overcome the adverse changes in the current environment surrounding Korean banking industry as well as play a pivotal role in the future economy of Korea.Kookmin and KLB have been taking up a leading position in retail consumer banking and wholesale corporate banking, respectively. Therefore, no other domestic consolidation could bring about greater synergy effect than the merger between these two banks.The two banks made a statement that, even after the merger, they will continue their efforts to seek for a strategic alliance with foreign partners in order not only to solidify their capital base but to enhance their operations system to an advanced one. They also stated that they will endeavor to minimize the government’s financial assistance for the financial restructuring by maximizing the size of the foreign capital inducement.2. A New Model of ConsolidationThe merger between Kookmin and KLB, both of which are regarded as the best in their respective fields, is the accouplement of a retail specialist and a corporate professional. This type of merger is unprecedented in the history of Korea’s banking industry. Unlike the other merger cases which mostly aimed for achieving a cost effectiveness, the combination of Kookmin and KLB is targeted to accomplish the amalgamation of each client base and the diversification of financial products.This merger will open a new era in the history of Korean banking foretelling the birth of a super sound bank that will lead the banking industry in
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Sep 09, 1998
- Meger between the Hana Bank & the Boram Bank
- On September 8, 1998, Hana Bank ranked 11th in terms of total assets, and Boram Bank, ranked 13th, have exchanged a Memorandum of Understanding for a merger between the two banks.The merger represents birth of a leading nationwide commercial bank with a competitive position in the international banking operations. The combination of Hana Bank's top ranking profitability and Boram Bank's top ranking customer satisfaction will allow the merged bank to provide quality services to its customers with an optimal level of satisfaction by equipping the combined network of approximately 250 branches nationwide with advanced financial products and services.To effectively meet the needs of middle to high income individual customers and small to medium sized corporates, the merged bank aims to become a Financial Services Group by the year 2002 with total assets of over KRW 100 trillion and total capital of over KRW 4 trillion by setting up businesses specializing in insurance, mortgage lending, mutual fund management, discount brokerage, asset management and investment banking either through MAs or establishment of subsidiaries.During the merger process, the government will extend its full and direct support to the two banks by means of purchasing much of its bad assets, thus improving both profitability and asset quality of the merged bank. Based on this combined profitability and asset quality, the Banks will consider promotion of an additional MA, increase of capital and acquisition of foreign capitals. Not only the merged bank will further increase its capital in addition to the recent acquisition of a foreign capital from an internationally reputable institution, IFC who has become the second largest shareholder of Hana Bank, but also will effectively utilize an overall risk management procedures adopted through IFC.In line with raising its profitability, the merged bank will adopt a system in which the corporate structure will be reorganized into independent business unit
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Sep 02, 1998
- Financial Restucturing in Korea
- The government will finalize core tasks relating to financial restructuring, including the extension of fiscal support, by the end of September and starting from October will implement measures to alleviate credit crunch and pursue normalization of intermediary function of the financial market.I. Bank Restructuring Plan1. 5 Resolved Banks- Assets/Liabilities due diligence, currently under progress, will be completed by September 25, whereas financial support will be provided to banks by the end of September.o About 2,800 employees, approximately 32% of acquired bank's total employees amounting to 8,950 (a total of 10,260 including temporary employees) will be taken over by the acquiring banks.¡¤ As of August 31, 1,517 employees of the acquired banks have signed employment contracts with acquiring banks.2. 7 Conditionally Approved Banks- Commercial Bank of Korea, Hanil Banko These 2 banks have submitted a merger application to FSC on August 25 and upon conclusion of related procedures, including announcement on request for creditors' discontent application, a shareholders' general meeting will be held for approval of merger on September 30.o Fiscal support will be provided for in order to prevent existing problems carrying over to the merged bank and to maximize synergy effect.¡¤ Management improvement measures which will have the effect of bringing productivity and earning potential of the merged bank up to that of advanced countries' banks will be required as a condition for fiscal support (productivity parameter represented by operational revenue per employee is to be utilized when setting level of layoffs required).- Cho Hung Bank, Korea Exchange Banko 2 banks are required to submit revised implementation plans including more detailed recapitalization and merger plans by August 31.o The bank(s) will be required to submit a memorandum indicating intention of dismissal of all bank management in the event foreign capital inducement or merger plans are not realiz
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Aug 21, 1998
- Update on Insurance Sector Restructuring
- - Business Transfer of 4 Insurance Companies -- The Financial Supervisory Commission (FSC), at an FSC meeting on August 21, 1998, deliberated the designation of 4 non-viable insurance companies, ordering those 4 companies, namely Kukje Life, BYC Life, Taeyang Life and Coryo Life to transfer their policies-in-force to Samsung Life, Kyobo Life, Hungkuk Life and First Life respectively. It has decided to ask for license revocation of 4 companies by the Minister of Finance and Economy.- Business subject to transfer are all policies-in-force as of the date the decision of business transfer was made.- The Korea Deposit Insurance Corporation will provide for the difference between valuation amounts of policy reserves and transferred assets, as a way to prevent the acquiring companies from being overburdened by transferred business.- 4 life insurance companies expressed intentions to take over closed companies' business and FSC after considering their eligibility in terms of solvency level, reserve adequacy and asset size decided to designate them as acquiring insurance companies.o Selection criteria for acquiring insurance companies· Companies operating sales offices at at least 10 jurisdictional areas nationwide (out of 16 jurisdictional areas)· Companies that received Insurance Supervisory Board's rating of A or better for FY'97 with proven superiority in assets quality, profitability, liquidity and management capabilities.· Companies with more than twice the number of personnel compared to that of closed insurance companies- Considering each company's unique characteristics and management capabilities and after consultation with representatives of acquiring companies and completion of approval procedures, business transfer pairs were determined.o Total assets, sales network and computer system etc. were considered.- The government will exert its utmost efforts to minimize policyholders' inconveniences, expedite the early completion of business transfer and normalizat
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Aug 11, 1998
- Management Improvement Measures toward Insurance Companies
- - The Financial Supervisory Commission (FSC), at an FSC meeting on August 11, 1998 deliberated management improvement measures for 18 life and 2 non-life insurance companies, accommodating recommendations concerning evaluation results of rehabilitation plans submitted by the appraisal committee.- For the evaluation of insurance companies' rehabilitation plans, 6 accounting firms conducted assets/liabilities due diligence. Based on these results the appraisal committee consisting of experts from the private sector evaluated the feasibility of rehabilitation plans of the insurance companies and subsequently submitted its recommendation to FSC- Major features of management improvement measureso 4 companies that are deemed to have unreasonable rehabilitation plans and thus have minimal chance of implementing them, namely Kukje Life, BYC Life, Taeyang Life and Coryo Life have been identified as non-viable financial institutions and accordingly will be subject to business suspension as of August 11, 1998. Once large life insurance companies interested in acquiring these institutions come forth, business transfer procedures including opinion hearings and acquisition approvals etc. will be carried out in due course.o 7 life insurance companies (Josun Life, Kookmin Life, Pacific Life, Handuk Life, Hankuk Life, Doowon Life, Dongah Life) with moderately reasonable rehabilitation plans and which thus are deemed to possess the capability to implement their rehabilitation plans but are not surely to satisfy minimum solvency margin requirements by September, 2000 (0%) will be required to make appropriate adjustments to rehabilitation plans and to submit related implementation plans.o 9 companies (Hanil Life, Shinhan Life, Hansung Life, Daishin Life, Tongyang Life, SK Life, Kumho Life, Haedong Fire Marine, Dongbu Fire Marine) with reasonable rehabilitation plans and which are deemed to possess the capability to implement plans with high possibility will be required to submit letter
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Aug 11, 1998
- FSC Chairman Announcement on Measures toward Insurance Co.
- 1. Management improvement measures for insurance companies- The Financial Supervisory Commission (FSC), at an FSC meeting on August 11, 1998 deliberated management improvement measures for insurance companies and business suspension orders toward non-viable companies.o The Financial Supervisory Commission, with input from evaluation results of the appraisal committee submitted to the Commission on August 10, 1998, deliberated on matters concerning solvency margin ratios of insurance companies and the feasibility of rehabilitation plans of 18 life and 2 non-life insurance companies and announced measures pertaining to management improvement and business suspension.- Looking into details on management improvement measures of insurance companies,o 9 companies namely, Hanil Life, Shinhan Life, Hansung Life, Daishin Life, Tongyang Life, SK Life, Kumho Life, Haedong Fire Marine and Dongbu Fire Marine, with reasonable rehabilitation plans, are deemed to possess the capability to implement plans with considerable certainty and will be required to submit letters of intent, which are to include quarterly implementation plans, within 1 month,o 7 life insurance companies namely, Josun Life, Kookmin Life, Pacific Life, Handuk Life, Hankuk Life, Doowon Life, Dongah Life, with moderately reasonable rehabilitation plans, are deemed to possess the capability to implement their rehabilitation plans. However, these companies show somewhat high deficiencies in solvency margins, whereas rehabilitation plans are deemed as likely to be affected by future external conditions and thus these companies will be required to make appropriate adjustments to rehabilitation plans and to submit related implementation plans within 1 month.o As for 4 companies that are for practical purposes insolvent and are deemed to have unreasonable rehabilitation plans and thus have a minimal chance of implementing them, namely Kukje Life, BYC Life, Taeyang Life and Coryo Life, will be subject to business suspens
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Aug 03, 1998
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Jul 31, 1998
- Merger between the Commercial Bank of Korea & the Hanil Bank
- On September 8, 1998, Hana Bank ranked 11th in terms of total assets, and Boram Bank, ranked 13th, have exchanged a Memorandum of Understanding for a merger between the two banks.The merger represents birth of a leading nationwide commercial bank with a competitive position in the international banking operations. The combination of Hana Bank's top ranking profitability and Boram Bank's top ranking customer satisfaction will allow the merged bank to provide quality services to its customers with an optimal level of satisfaction by equipping the combined network of approximately 250 branches nationwide with advanced financial products and services.To effectively meet the needs of middle to high income individual customers and small to medium sized corporates, the merged bank aims to become a Financial Services Group by the year 2002 with total assets of over KRW 100 trillion and total capital of over KRW 4 trillion by setting up businesses specializing in insurance, mortgage lending, mutual fund management, discount brokerage, asset management and investment banking either through MAs or establishment of subsidiaries.During the merger process, the government will extend its full and direct support to the two banks by means of purchasing much of its bad assets, thus improving both profitability and asset quality of the merged bank. Based on this combined profitability and asset quality, the Banks will consider promotion of an additional MA, increase of capital and acquisition of foreign capitals. Not only the merged bank will further increase its capital in addition to the recent acquisition of a foreign capital from an internationally reputable institution, IFC who has become the second largest shareholder of Hana Bank, but also will effectively utilize an overall risk management procedures adopted through IFC.In line with raising its profitability, the merged bank will adopt a system in which the corporate structure will be reorganized into independent business unit
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Jul 29, 1998
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Jul 24, 1998
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Jul 02, 1998
- Clarification on Press Release of BIS Ratios of 12 Banks
- The release of BIS ratios and information pertaining to precautionary loans and below (as of March, 1998) on July 1, 1998 represents a mere segment of accounting firms' projection of BIS ratio and precautionary loans and below out to June, 2000, which was done as a part of the evaluation of rehabilitation plans submitted by the 12 undercapitalized banks.Taking into account the fact that prevailing BSA (Bank Supervisory Authority) asset classification standards as well as accounting standards will be strengthened to match that of international standards, accounting firms applied in its estimation the revised standards which represent significantly stricter standards. The released information, therefore, does not represent an official estimation based on prevailing standards nor is it in any way an official announcement issued by the supervisory authorities.As amendment of existing standards is in the works, which also happens to be a condition mandated to be met by January, 1999 under agreement with the IMF, it makes sense to apply amended standards and to judge whether or not banks will be able to meet BIS standards (8%) by the end of June, 2000 even under stricter standards.These BIS ratios are meaningful in that they serve as a yardstick that measures, with the use of international standards, the potential soundness of banks going 2 years forward and for these reasons they were utilized in the Bank Appraisal Committee's evaluation of the feasibility of rehabilitation plan's mid-to-long term strategies.Along these lines it is important to regard the recent release of BIS ratios and statistics on precautionary loans and below as of March, 1998 as a mid-point estimation, which only represents a part of a larger scheme to evaluate the feasibility of achieving the BIS ratio 8% target by June, 2000, based on rehabilitation plans submitted by respective banks.One of the reasons BIS ratios at March, 1998 were low is that valuation of securities holdings in bank accounts a
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Jul 01, 1998
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Jul 01, 1998
- Strengthening of Prudential Supervision of Foreign Exchange
- 1. BackgroundRisks accompanying foreign exchange operations are mounting in Korea due to increased multi-national transactions, financial deregulation, tougher competition among financial institutions and the introduction of derivatives.However, foreign exchange management by the Foreign Exchange Management Act has been enforced mainly through focusing on aspects of the management of external assets and liabilities.○ The supervision of foreign exchange operations, executed mainly by the central bank, has given more weight to the stability of the foreign exchange market and monetary policy, rather than to assuring the soundness of commercial banks.〓 The supervisory function was not sufficient to manage the various risks, which may arise in foreign exchange operations, such as exchange risk, credit risk, liquidity risk, market risk, etc..○ It is necessary to strengthen prudential supervision over banks' foreign exchange operations, in order to prevent recurrence of the foreign exchange crisis through efficient management of the risks inherent in foreign exchange operations.2. Contents◎ In order to efficiently manage various risks in foreign exchange operations, the Banking Supervisory Authority is taking comprehensive measures.○ The foreign currency liquidity regulation system will be modified to enforce the Maturity Mismatches(GAP) Regulation, as well as the Foreign Currency Liquidity Ratio Regulation.○ The banks will set up and manage the limits on their foreign exchange operations under the Guidelines of the Banking Supervisory Authority.○ The Banking Supervisory Authority is also strengthening its off-site surveillance by improving banks' reporting systems, in order to facilitate risk evaluation and assure the soundness of foreign exchange operations in commercial banks.1) Strengthening of supervision on liquidity riskIntroduction of the Maturity Mismatches(GAP) Regulation○ After dividing assets and liabilities into 7 buckets1) according to their r
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Jun 29, 1998
- Reasoning behind bank selection of acquiring banks
- Reasoning behind bank selection of acquiring banks■ FSC made recommendations to sound banks under a PA arrangement to acquire banks which would most likely receive disapproval of rehabilitation plans ○ Shinhan Bank, Housing Commercial Bank, Kookmin Bank, Hana Bank and Koram Bank prepared necessary acquisition procedures and with consideration of its long-range business plan made selections as to which bank to acquire■Kookmin Bank and Housing Commercial Bank have maintained a comparative advantage in retail banking for households and SMEs. ○Hence, they chose to acquire banks that specialize in SME business such as Dae Dong Bank and Dongnam Bank■Shinhan Bank, Koram Bank, Hana Bank have maintained a comparative advantage in corporate and high net-worth individual business ○Hence, Shinhan Bank and Koram Bank preferred to acquire banks that have a strong branch network in the metropolitan area such as Dong Hwa Bank and Kyungki Bank ○Hana Bank with a relatively small number of employees choose to acquire Chung Chong Bank which has the least number of branch offices among resolved banks and will be bestowed with the opportunity to transform into a leading bank■In order to stand out as a leading bank (Type A in the following diagram), Kookmin Bank, Housing Commercial Bank (Type B) as well as Shinhan Bank, Koram Bank, Hana Bank (Type C) will each leadareas of which it has a comparative advantage and will exert to further expand its competitive edge ○The banking industry will be transformed into a competitive one led by increased market discipline and prompt corrective actions by the regulators ○To be ranked as a leading bank, it will have to strengthen corporate financing as well as international banking expertise and pursue scale and scope economy possibly through MAs.
