Financial stability is a prerequisite to innovation and inclusive finance policies. FSC maintains close market monitoring for any signs of market volatility and works to ensure stability in the financial markets. There are risk factors originating from abroad and from within. FSC focuses on making our economy more resilient from external shocks, such as a disruption in the global supply chain, and supporting Korea’s material, component and equipment industries to help boost their global competitiveness. Internally, FSC is closely monitoring the trends in household debt and seeking reforms to corporate restructuring in order to prevent domestic risk factors from turning into systemic risks. Policies aimed at increasing financial stability also include enhancing fairness in the financial markets by introducing a comprehensive legal framework for the supervision of financial conglomerates, improving market discipline and promoting transparency in corporate disclosure and accounting practices.
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Jun 18, 2020
- Vice Chairman Holds Meeting to Review Risks in Financial Sectors
- Vice Chairman Sohn Byungdoo held a meeting to review market conditions and risk factors in the financial industry on June 18 with experts from the public and private sectors.The following is a summary of Vice Chairman Sohn’s remarks.(END-OF-QUARTER-EFFECT IN JUNE) In March, the global spread of the COVID-19 infection, rising instability in financial markets and the end-of-quarter shortage in capital supply led to difficulties in the corporate bond and short-term money markets. In response, the government launched various financial support and liquidity injection measures, including a bond market stabilization fund and an SPV to purchase lower-rated corporate bonds and CP. As a result, the markets have begun to show signs of recovery with yield spreads growing at a slower rate.However, blue chip companies and non-blue chip companies face different conditions for issuing bonds. In June, a total of KRW68 trillion worth of corporate debt will be up for maturity (KRW12.2 trillion in corporate bonds and KRW55.5 trillion in CP and short-term debt). About 90 percent of them are high rated debt and will face not much obstacle in meeting debt obligation. The securities firms with margin call obligations related to equity-linked securities are maintaining foreign currency liquidity in case of global stock price fall. Thus, the liquidity problem is not a major concern.The government will temporarily ease the liquidity requirements of repo sellers to prevent a surge in cash demand at the end of June. The government will also provide support through policy banks’ corporate bond and CP purchase programs.(INVESTOR PROTECTION WITH DERIVATIVES PRODUCTS) With investors’ interest in derivatives products growing, the volumes of FX margin trading and CFD transaction by retail investors have increased significantly this year. For FX margin trading, the proportion of retail investors is very high at about 92 percent, despite the implementation of various measures, such as stricter ru
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Jun 17, 2020
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Jun 16, 2020
- Vice Chairman Underscores Support for Real Economy Sectors
- FSC Vice Chairman Sohn Byungdoo held the 8th financial risk assessment meeting on June 16 to assess the financial market conditions and check the implementation status of the COVID-19 financial support.The following is a summary of Vice Chairman’s remarks.(CURRENT SITUATION) Last week, the OECD released its forecasts for global economic growth based on the “single-hit” and “double-hit” scenarios of the spread of the infection. Compared to its announcement in March, the 2020 and 2021 forecasts were largely revised down. Meanwhile, the OECD indicated Korea as a “notable outlier” as the country’s effective quarantine measures and prompt financial assistance led to the slightest fall in the expected growth forecast.Despite signs of stability in the financial markets, the real economy sectors continue to struggle, with exports and employment showing continuous declines. This discrepancy exists because the sufficient level of liquidity in the markets cannot reach the businesses with unfavorable credit histories. As such, the government will work to reduce this discrepancy between the financial markets and the real economy sectors.(SUPPORT FOR SMES AND REAL ECONOMY SECTORS) From January to May, SME loans increased KRW48.6 trillion, and according to an FSS review, small-scale businesses and SMEs with lower credit backgrounds were also able to access loans.However, the government’s financial support is not being felt by many businesses. To address their needs, financial companies should utilize their know-hows in risk-pooling, capital raising and risk management to more readily assist the businesses struggling with liquidity problems.The government will continue to work on providing supports to the real economy sectors through a range of financial assistance programs including a lower-rated corporate bond and CP purchase program, a special loan guarantee program for auto industry, a corporate asset purchase program and an expansion of P-CBO issuance. The go
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Jun 15, 2020
- FSC Chairman Vows Support for Auto Industry
- FSC Chairman Eun Sung-soo visited Korea Fuel-Tech Corporation on June 15 in Seongnam-si and held talks on ways to provide effective assistance to the car and auto parts industries struggling with the pandemic-driven economic crisis.The following is a summary of Chairman Eun’s remarks.(GOVERNMENT’S RESPONSE TO PANDEMIC) The government has taken multipronged approaches to stabilize markets and provide businesses with financing assistance. The KRW175 trillion-plus financial support package consists of the bond market stabilization fund, P-CBO support for corporate bond markets, emergency loans and preferential guarantees. The KRW40 trillion key industry stabilization fund has been launched which will begin providing support in June. Also, a special purpose vehicle in the amount of KRW10 trillion will be ready for purchasing lower-rated corporate bonds and commercial paper as soon as the 3rd supplementary budget is passed at the National Assembly.Backed by these measures, about KRW42.5 trillion in SME loans has been issued between January and May 20 this year, which amounts to approximately 84 percent of total SME loans issued last year. Also, instability in the stock markets and corporate bond market has been largely subsided.(SUPPORT FOR AUTO INDUSTRY) The government has made available about KRW5 trillion worth of financial support to the auto industry since February. However, the entire industry is struggling with a sharp fall in exports and shortage of work due to the shock in the global supply chain and overseas factory shutdowns.In particular, SMEs and middle market enterprises are burdened with additional hardship as they face limited access to loans due to thin credit records.(FURTHER PLANS) In order to minimize the pandemic’s damaging effects on the auto industry, close cooperation should take place between the government, industry and financial institutions. While promoting ways to help businesses to boost credit standing on their own, the government wil
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Jun 11, 2020
- Government Launches KRW2 Trillion-plus Program to Purchase Corporate Assets
- The government announced its plans to launch a KRW2 trillion-plus program to purchase corporate assets at the 6th Meeting of the Central Economic Response Headquarters on June 11.BACKGROUNDIn order to provide liquidity and bolster financing options for businesses amid the pandemic, the government has made available KRW175 trillion-plus in financial support programs, from which about KRW52.6 trillion has been provided as of June 8.Aside from the government-backed financing programs, companies have been selling off their assets to boost liquidity. Asset sell-offs are an important strategy for corporate restructuring and improving company’s financial structure. For companies’ self-rescue efforts to be effective, asset sell-offs should take place at fair prices.To facilitate this, the government will set up a special purpose vehicle (SPV) at the Korea Asset Management Corporation (KAMCO) to purchase corporate assets at fair prices, stimulating private sector demand for corporate assets.KEY DETAILSA KRW2 trillion-plus SPV will be created through bond issuance from KAMCO with the possibility of expanding the fund size with participation from the privately managed funds. KAMCO will work to increase its funding capacity by making investments in assets with different term periods.The SPV will purchase assets held by all sized companies but will primarily invest in assets that are unlikely to attract sufficient demand in the market. An input from outside experts, such as accounting firms, will be used to help establish objective and balanced pricing standards.Based on the characteristics or types of assets and considering the future possibility of buybacks, the SPV will adopt different buying strategies—(a) buy and hold, (b) sale and leaseback, and (c) sale and call option agreement.The Corporate Structure Innovation Support Center run by KAMCO will function as a platform to promote information sharing and act as an intermediary between sellers and buyers. It will promo
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Jun 09, 2020
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Jun 03, 2020
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Jun 02, 2020
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May 26, 2020
- Vice Chairman Calls for Close Cooperation between Businesses, Creditors and Lending Institutions
- FSC Vice Chairman Sohn Byungdoo held the 5th financial risk assessment meeting on May 26 to check the current status of the COVID-19 financial support for businesses and households. The following is a summary of Vice Chairman’s remarks.(LOW-RATE FINANCIAL SUPPORT FOR SMALL MERCHANTS) The government has made available KRW16.4 trillion in low interest rate financial support package for about 430,000 small merchants. Between May 18 and 22, about 31,442 applications were received by lending institutions.(EMERGENCY RELIEF PAYMENTS) As of May 25, about 94 percent of households applied for emergency relief payments. Swift processing of relief payments was made possible by strong cooperation between the public and private sectors.(SPV KEY INDUSTRY STABILIZATION FUND) The government will take prompt steps in preparation for establishing a special purpose vehicle intended to purchase low rated corporate bonds and CP, and for launching a key industry stabilization fund this week.In order to boost the effectiveness of these policies, close cooperation is essential between businesses, creditors and financial institutions.FINANCIAL SUPPORT PROVIDEDAs of May 22, a total of KRW107.8 trillion (1,327,000 individual cases) in loans and guarantees as well as loan and guarantee extensions were provided to the SMEs and small-scale businesses that have been hit by the COVID-19 pandemic.► FINANCING BY TYPE: KRW54.3 trillion (1,038,000 cases) in new loans and guarantees, KRW50.2 trillion (256,000 cases) in maturity extensions and deferred payments, KRW900 billion (7,000 cases) in deferment of interest payments, and KRW2.4 trillion (25,000 cases) in export-import credit finance and discounted interest rates and late fees► FINANCING BY INDUSTRY: KRW13.5 trillion (150,000 cases) to wholesale businesses, KRW8.7 trillion (273,000 cases) to restaurant businesses and KRW8.7 trillion (223,000 cases) to retail businesses► FINANCING BY PROVIDER: KRW59.1 trillion (824,000 cases) by policy bank
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May 20, 2020
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May 20, 2020
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May 19, 2020
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May 18, 2020
- Vice Chairman Holds Meeting on Measures to Improve Asset-backed Securities Market
- FSC Vice Chairman Sohn Byungdoo held a meeting with industry officials and experts on May 18 to discuss ways to improve the asset-backed securities market.The following is a summary of Vice Chairman Sohn’s remarks.(IMPORTANT ROLE OF ASSET-BACKED SECURITIES) The asset-backed security (ABS) provides businesses with a great means to raise funds and offers more favorable terms than credit-based financing. Businesses are able to treat securitized assets off-the-book for accounting purposes, which helps to improve their financial structure. The ABS allows businesses to securitize diverse assets including future assets and intellectual property rights to generate funds needed for now. In Korea, the enactment of the Asset-backed Securitization Act in 1998 contributed to clearing troubled assets and helped ride out the foreign exchange crisis. Since then, the ABS has been used as an innovative means to raise funds by enterprises and financial companies.(IDENTIFYING PROBLEMS) (a) With regard to risk management, the rapid expansion of the unregistered securities market can be a risk factor as it is difficult to identify the issuing entity, records of underlying assets and securitization structure. In particular, the real estate project financing asset-backed commercial paper (ABCP) poses problems for securities firms as they have to take the burden of refinancing risk due to a duration mismatch between fund raising and fund management. (b) The role of ABS in corporate financing has also been in decline. Over the years, the ABS market’s focus has been shifting toward transactions that follow interest margins. Due to the delayed reforms in the registered securities system, the current ABS market has been unable to fully accommodate diverse securitization demand in the market.(MEASURES FOR IMPROVEMENT) (a) To enhance risk management, the government will introduce the risk retention rule, requiring asset holders to possess about 5 percent of credit risk to prevent conflict of
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May 18, 2020
- Measures to Improve ETF and ETN Markets
- The FSC announced the measures to improve the exchange-traded fund (ETF) and exchange-traded note (ETN) markets on May 15, which seek to contain overheated investment demand and mitigate excessive concentration on particular investment products.The measures are aimed at (a) preventing indiscriminate investment behavior in ETF and ETN markets by requiring minimum deposits and mandatory online education for retail investors, (b) improving brokerage firms’ management of disparate ratios to minimize investor damages from speculative demand, and (c) creating an environment for the development of diverse investment products to break up excess demand on particular instruments.BACKGROUNDETFs and ETNs are exchange listed investment products structured to enable diversification of investment for retail investors in traditional investment assets, such as stocks and bonds, and to allow small-sum investing in a variety of alternative assets including foreign exchanges and commodities.The ETF market has grown as a major publicly offered fund market and ETNs have provided a niche market where ETF offering remained difficult. Recently, there has been excessive concentration toward leveraged ETFs and ETNs amid the COVID-19 pandemic-induced market volatility. After the collapse of international oil prices, investors flocked to major oil ETFs and ETNs with an expectation for a rebound in oil prices, thereby raising the potential for losses. Trend followers who lack information about the risk characteristics of these products also flocked to invest in oil ETFs and ETNs, artificially pushing up trading prices well above their intrinsic asset values. A series of investor alerts and cautions by securities companies, the Korea Exchange and the FSS as well as transaction suspensions have been issued, but they have yet to successfully curb the overheated demand. Thus, the financial authorities drew up measures to cool overheated investor demand and more effectively manage markets.RECENT IS
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May 13, 2020
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May 12, 2020
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May 12, 2020
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May 06, 2020
- FSC's Revision Proposal Designates 7 Key Industries for Key Industry Bailout Fund
- The FSC announced revisions to the enforcement decree of the Korea Development Bank Act on May 6, which designate seven specific industries to be eligible for the key industry bailout fund and establish necessary provisions for the fund’s operation. KEY REVISIONS(DESIGNATION OF KEY INDUSTRIES) The Korea Development Bank Act broadly defines key industries as those considered crucial to the real economy, stability of the job market and national security, such as defense industry, industries barred from foreign investment, etc., and prescribes that the designation of specific industries be carried out by enforcement decree. Through this amendement, the airline, maritime shipping, machinery, automobile, shipbuilding, electric power and communications industries will be designated as key industries. The FSC may include additional sectors upon request from the relevant ministers if funding support is deemed necessary.(ISSUANCE OF BONDS) The revisions to the enforcement decree established the necessary rules including the issuance of bonds, subscription, etc.(VOTING RIGHT) The KDB may exercise its voting right only in the following two exceptional circumstances to preserve the fund’s assets—a) decisions involving significant stakes to the value of equities and b) when a company receiving the support undergoes structural adjustment.(FUND MANAGEMENT COUNCIL) The 7-member council will consist of members recommended by the relevant standing committees of the National Assembly, government ministries and the KDB.SCHEDULEThe revisions to the enforcement decree of the Korea Development Bank Act will be finalized at a cabinet meeting after an examination by the Ministry of Government Legislation.* Please refer to the attached PDF for details.
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May 06, 2020
- FSC Chairman Stresses Importance of Concerted Effort from Banks and Financial Authorities
- FSC Chairman Eun Sung-soo presided over a financial risk assessment meeting on May 6 to check the implementation of the COVID-19 emergency financial support and discuss measures to support SMEs, middle market enterprises, small-scale businesses as well as the key industries.The following is a summary of Chairman Eun’s remarks:(SMES MIDDLE MARKET ENTERPRISES) It is essential to have a concerted effort by the banking sector and the financial authorities for an effective delivery of the financial support to the SMEs and middle market enterprises. In this regard, the financial authorities will work on promoting movable asset-based lending and sale-and-leaseback by companies while working on measures to help relieve financing difficulties for subcontractors in key industries.(SMALL-SCALE BUSINESSES) As the second phase financing support for small-scale businesses will be provided through the banking sector, it is necessary not to leave behind individuals with low credit scores. To ensure that the second phase support is being provided as scheduled, all necessary preparations should take place promptly.(KEY INDUSTRIES) The government will work to promptly implement the stabilization fund for key industries. The banking sector should be encouraged to cooperate with the Korea Development Bank to support the country’s key industries. With regard to the conditionality which obliges businesses to maintain employment, there should be appropriate balance between protecting jobs and not acting as a constraint for companies in applying for the support.FINANCIAL SUPPORT PROVIDEDBetween February 7 and May 1, a total of KRW77.4 trillion (890,000 individual cases) in loans and guarantees as well as loan and guarantee extensions were provided to the SMEs and small-scale businesses that have been hit by the COVID-19 pandemic.► FINANCING BY TYPE: KRW40.3 trillion (707,000 cases) in new loans and guarantees, KRW34.9 trillion (169,000 cases) in maturity extensions and deferred paymen
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May 06, 2020