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 Plan
1. 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 Bank
o 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 Bank
o 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 realized by October.
- Peace Bank of Korea, Kangwon Bank, Chungbuk Bank
o Peace Bank of Korea submitted implementation plans under conditions that it will not engage in international business or large loan business (credit of 5 billion won or more) and will be dealt with in accordance to demonstrated progress of implementation plans.
o Kangwon Bank will merge with Hyundai Merchant Bank subsequent to recapitalization.
o Chungbuk Bank will be monitored for progress of implementation plans including recapitalization and if found to not have carried out plans, management improvement measures including merger will be imposed.
3. Korea First Bank, Seoul Bank
- Among the two, the bank with a better chance to succeed in sell-off to foreign investors will be sold beforehand.
o Upon final determination of sale conditions in consultation with lead manager potential purchasers will be contacted for detailed explanation of sale starting from early September and by October 15 bids will be accepted, with an aim at signing of contract by the end of October.
- In addition, reduction in management posts will take place in September, whereas other conditions to attract foreign investors, including layoffs and disposal of subsidiaries (utilizing per employee productivity benchmarks) will be established.
4. 13 banks with BIS ratio exceeding 8% at the end of 1997
- All banks satisfied BIS ratio of 8% according to first half year estimates.
- Banks deemed to possess potential to become distressed as a result of diagnostic reviews completed by August 31 will be subject to management improvement measure requests, upon conducting investigations on management.
o Management improvement order will be imposed on Cheju Bank, which is deemed to have a potential to become distressed, upon completion of management appraisal currently under progress.
II. Non-bank Restructuring Plan
- Merchant Banks
o Among 30 merchant banks 16 troubled merchant banks got their licenses revoked and they are currently undergoing resolution procedures.
o 14 merchant banks that are currently under operation will be monitored for implementation of rehabilitation plans and achievement of BIS ratio of 6% as of end-June, 1998.
- Leasing Companies
o Among 25 leasing companies 10 leasing companies, which their major shareholders decided to resolve, are undergoing liquidation or assets/liabilities transfer by means of a bridge leasing company.
¡¤ Procedures necessary to conclude assets/liabilities transfer of leasing companies to bridge leasing company, such as consent from shareholders' meeting and approval of creditor council are currently in progress (to be completed by September).
¡¤ Subsidiaries of 4 closed banks will be liquidated by end-September unless there is a purchase interest in which case it will be sold to a third party.
o The remaining leasing companies will be monitored for implementation of rehabilitation plans.
- Insurance companies
o Assets and liabilities to be transferred from the 4 troubled insurance companies that received closure orders will be fixed upon assets/liabilities due diligence by end-September.
o 16 insurance companies that are subject to management improvement measures will be monitored for progress in management improvement as indicated in their implementation plans.
o 2 fidelity/surety insurance companies are required to submit revised rehabilitation plans containing merger and management replacement plans, with an aim to inducing rigorous management rehabilitation.
- Securities companies
o Among 32 securities companies 4 companies that possess unsound financial structures (operational net capital ratio < 100%), namely SK, Ssangyong, KLB, Dongbang Peregrine are required to submit management improvement plans by Sept., 19, 1998.
o The decision relating to whether or not these companies will be subject to resolution will be made based on diagnostic reviews by accounting firms and evaluation results of the appraisal committee by end-September.
- Investment trust companies
o Monitoring of implementation of rehabilitation plans of existing 6 companies while inducing management improvement.
o Hannam Investment Trust which received suspension order will transfer its business to Kookmin Investment Trust by end-September and undergo liquidation procedures.
o A scheme to improve regulatory framework for investment trust business will be formulated by end-September as a way to enhance asset management soundness and protection toward beneficiaries (mark- to-marketing of securities, provisioning for nonperforming assets, more stringent disclosure of asset management and installation of fund for beneficiaries protection etc.) for facilitated normalization of investment trust business.
- Mutual saving and finance companies
o Among 230 companies 32 troubled companies will be subject to management guidance or management control by the Non-bank Supervisory Authority with the aim to induce rehabilitation.
o Companies that are deemed as not having the potential to recover will be resolved either through business transfer, sale or liquidation.
- Credit unions
o Among 1,653 unions 36 unions will be subject to management guidance measures.
o Troubled unions will be subject to self-rescue efforts or mergers with the aim to induce rehabilitation.
o 12 unions that are deemed as not having the potential to recover will be liquidated.
III. Fiscal Support Plan toward Financial Institutions
- Necessity for Fiscal Support
o In principle, financial institutions will have to seek funding needed for financial restructuring on their own. However, fiscal support is inevitable in light of the following points.
¡¤ Instability in the financial system will act as a significant deterrent to early economic recovery.
¡¤ Restructuring requires funding of a level exceeding financial institutions' capabilities.
- Principles for Fiscal Support
o On the condition of the self-rescue efforts by financial institutions, support will be provided at a level corresponding to self-rescue efforts.
¡¤ Self-rescue efforts include cutback of personnel and branch closures for the enhancement of productivity and earning potential, disposal of fixed assets and foreign capital inducement.
o Loss sharing by existing shareholders through capital reduction and replacement of management is required.
o Principle of asset soundness
¡¤ Reduction of existing nonperforming loans and setting up of measures to prevent new nonperforming loans
¡¤ KAMC's purchase of nonperforming loans of substandard and below
¡¤ Precautionary loans will be subject to workout in order to turn them into normal loans
¡¤ The soundness of normal loans with non-performing potential should be upgraded through debt-equity swap or corporate restructuring fund
o Prompt and sufficient extension of support to guarantee viability of financial institutions
¡¤ Maximization of the recovery of government stake after normalization
o Increase of loans in order to avoid credit crunch during the course of restructuring
¡¤ include favorite treatment for extending credit to corporates including SMEs as condition for fiscal support
- Content of Fiscal Support
o 5 resolved banks
¡¤ cover for the difference between assumed liabilities and assets of the acquiring banks
¡¤ capital injection so as to prevent the deterioration of acquiring bank's BIS ratio
¡¤ purchase of NPLs of resolved banks and acquiring banks
o Merged banks
¡¤ mergers between troubled banks : capital injection to a level that will bring BIS ratio up to 10% (taking into account potential of assets turning bad thereafter)
¡¤ mergers between sound and troubled banks : capital injection to a level that will bring BIS ratio up to sound bank's BIS ratio
¡¤ purchase of NPLs of merging banks
o Stand-alone banks
¡¤ Necessary support will be provided for management normalization through among others purchase of NPLs that can be sold by the banks to the full extent
- Future plans
o Determine the content of fiscal support in consideration of bank's self-rescue efforts by the end of September.
¡¤ Support will be provided to 5 acquiring banks immediately upon completion of assets/liabilities due diligence in September.
¡¤ Support will be provided to Commercial Bank of Korea and Hanil Bank ensuing shareholder's general meeting scheduled for late September.
¡¤ Support will be provided to Cho Hung Bank and Korea Exchange Bank once rehabilitation plans are set in September.
¡¤ Purchase of NPLs will occur at once in September as soon as NPLs to be purchased have been determined.
* Please refer to the attached file for details.