Press Releases - Financial Services Commission

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Sep 23, 2004

The Securities and Futures Commission Announces Sanctions against Hynix Semiconductor Inc. for Accounting Violations

The Securities and Futures Commission today announced sanctions against Hynix Semiconductor Inc. for the accounting violations discovered by the Financial Supervisory Service after an extensive audit review of the company’s financial statements. The sanctions announced include: a monetary fine of KRW2 billion against the company, referral of the former CEO of the company to the Prosecutors’ Office for criminal penalties, a signed pledge of compliance by the current CEO, monetary fines totaling KRW770 million against the company’s outside auditor and a recommendation for suspension of future audits for two individual auditors. The monetary fines imposed on the company and its outside auditor by the SFC will be finalized by the Financial Supervisory Commission.Hynix Semiconductor Inc. was found to have overstated its assets by reporting interest and other expenses as assets for construction-in-progress for the accounting years from 1996 to 1999 and reported depreciation expenses and asset impairment losses from the inflated assets during 2000-2003. The company also improperly deferred selling and administrative expenses from the applicable accounting period.For the fiscal year 2003, Hynix also misreported as non-operating expenses (rather than as an adjustment to the retained earnings) error corrections totaling KRW568.1 billion from the previous year and made improper footnote entries. The SFC noted that the accounting violations that occurred prior to 2003 have been appropriately addressed and that the company’s balance sheet for the fiscal year 2003 did not contain overstated assets or understated liabilities. In addition, Hynix’s financial statements beginning with the fiscal year 2004 are not expected to be affected by the previous accounting violations.The SFC also noted that the sanctions issued against Samil, Hynix’s outside auditor, were fully warranted given the auditor’s failure to properly account for the numerous shortcomings that have been
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Sep 22, 2004

BIS Capital Adequacy Ratio of Domestic Banks As of the End of June 2004

The BIS capital adequacy ratio of domestic banks as of the end of June this year averaged 11.73%, up from 11.20% at the end of 2003 and the highest since 11.95% at the end of the first half of 2001. The ratios rose for 12 banks and fell for 7 banks since the beginning of 2004.A modest 3.4% increase in risk-weighted assets coupled with a fairly large KRW3.6 trillion jump in net income and an increase in government equity in the Korea Development Bank helped to push the overall BIS capital adequacy ratio for the first half of the year. Domestic banks also achieved a qualitative improvement in their capital base with Tier-1 capital rising KRW5.2 trillion won during the first half, compared with an increase of KRW1.1 trillion for Tier-2 capital.* Please refer to the attached PDF for details.
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Sep 20, 2004

September 20 News Article in the Seoul Economic Daily Concerning Accounting Misconduct by Hynix Semiconductor Inc.

The following is a response to the September 20 news article by Seoul Economic Daily that the Financial Supervisory Service found, through its own investigation, the size of the accounting misreporting by Hynix Semiconductor Inc. that had been carried over from Hyundai Electronics Industries Co. to be significantly larger than what the government prosecutors have found.The Financial Supervisory Service was informed by Korea Deposit Insurance Corporation of potential accounting violations by Hynix Semiconductor Inc. for the accounting periods from 1996 to 1999. Based on this information, the Financial Supervisory Service completed an investigation of the company’s accounting for the fiscal years from 1999 to 2003 and whether the company’s outside auditor engaged in negligent audit. The investigation found that the misreporting mostly took place in the past and that it had already been appropriately resolved.The investigation found that the company overstated the size of its fixed assets by treating certain expense items as assets for construction-in-progress and took out depreciation expenses and losses from asset impairment. The company was also found to have improperly deferred certain selling and administrative expenses into the future years.For the fiscal year 2003, the company was also found to have improperly reported correction of errors totaling KRW568.1 billion from the previous fiscal year by misapplying the correction items or by making incorrect footnote entries in the company’s financial statements. But since the company corrected all of past errors and neither overstated its assets nor understated its liabilities in the balance sheet, the financial statements beginning with the fiscal year 2004 will not be affected in any way by the past misreporting.The Audit Review Committee of the Financial Supervisory Service convened on September 17 to review the accounting matters concerning Hynix Semiconductor Inc. as well as possible audit negligence by th
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Sep 10, 2004

Findings of General Examination on Kookmin Bank

The Financial Supervisory Service conducted a general examination on Kookmin Bank from April 7 to May 12, 2004, with a particular focus on the bank’s management status evaluation and its compliance with the Banking Act and other pertinent laws and regulations. The findings of the general examination are summarized as follows:1. Results of the Management Status EvaluationThe overall rating for Kookmin Bank’s management status evaluation as of the end of March 2004 fell by one grade from the previous overall rating Kookmin Bank received at the end of September 2002. Because of weaknesses in the bank’s asset quality, profitability, capital adequacy and business management, more than the customary disciplinary warning is required to appropriately address them.In particular, the bank’s asset quality significantly deteriorated. As of the end of March 2004, the loan default ratio (defaulted loans over total loans outstanding) was 4.42%, and the ratio of loans classified as substandard or below (sum of loans classified as substandard, doubtful or presumed loss over total loans outstanding) reached 4.24%, comparatively higher than those of other banks. These ratios reflect structural weaknesses in the bank’s loan portfolio burdened by exposures to economy-sensitive sectors (e.g., credit card, households, and small and medium-sized companies) and high -risk businesses as well as realization of distress in the bank’s credit card business with relatively large potential losses.Mostly as a result of deteriorating asset quality and loan -loss provisioning, Kookmin Bank recorded net loss of KRW753.3 billion for 2003. For the first half of 2004, Kookmin Bank’s net income came to KRW307.6 billion, which is comparatively smaller than net income reported by other banks. For the year from April 2003 to March 2004, Kookmin Banks’ ROA was -0.52%.As of the end of March this year, Kookmin Bank’s BIS capital adequacy ratio fell below the 10.86% average to 10.11% mostly as
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Aug 30, 2004

The Securities and Futures Commission Takes Disciplinary Measures Against Kookmin Bank for Accounting Irregularities

On August 25, 2004, the Securities and Futures Commission (SFC) announced that Kookmin Bank will be fined KRW 2 billion for accounting standard violations in its 2003 financial statements. The monetary fine is pending final approval from the Financial Supervisory Commission (FSC). In addition, the SFC will designate an outside independent accounting firm to audit the bank for the next two years.These above sanctions are based on the Act on External Audit of Corporations, which grants the SFC statutory authority to make the final ruling on Kookmin Bank's accounting irregularities. The Sanction Committee and the FSC will deliberate further sanctions against Kookmin Bank and its employees upon review of the results of the Financial Supervisory Service's examination of the bank's accounting and banking activities.The SFC has also taken disciplinary measures against Samil Accounting Corporation, the auditor of Kookmin Bank. Samil has been mandated to pay an additional contribution to the Collective Loss Compensation Fund managed by the Korea Institute of Certified Public Accountants. The accounting firm will be banned from future audits of Kookmin Bank for the next two years. Additionally, the SFC has charged Samil with penalty points for negligent auditing. The two Samil Accounting Corporation accountants responsible for the accounting irregularities will be restricted from conducting audits for one year.The SFC has reported that Kookmin Bank failed to comply with the Korean standards of accounting in the following three cases:• The first case involves the bank's accounting practices in regard to its September 2003 merger with Kookmin Credit Card Company. Kookmin Bank set aside an additional KRW 1.6564 trillion in loan-loss provisions on behalf of its credit card unit. These provisions should have been taken instead by the credit card unit. Although this particular accounting practice may not materially affect the bank's consolidated financial statements based on US g
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Jul 26, 2004

Domestic Banks’ Net Income for the First Half of 2004 Comes to KRW3,587.5 Billion

Preliminary figures show that domestic banks’ net income for the first half of the year totaled KRW3,587.5 billion, the largest first-half net income ever reported by domestic banks and a sharp rebound from KRW733.5 billion a year earlier. All the banks reported positive net income for the period. A large jump in net interest income from increased lending, no new large loan losses, service revenues from bancassurance, investment holding gains from the subsidiary units, and gains from securities investments are said to have contributed to the turnaround in net income for the first half of the year.* Please refer to the attached PDF for details.
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Jun 09, 2004

BIS Capital Adequacy Ratio of Domestic Banks: March 2004

The BIS capital adequacy ratio of domestic banks as of the end of March this year averaged 11.49%, up from 11.20% at the end of 2003 and the highest since the first quarter of 2002. Bank capital grew by 4.9% and risk-weighted assets by 2.3% during the first quarter. Bank capital was pushed up by a 2.7 trillion won increase in core capital (including 1.7 trillion won in net income and 200 billion won in newly issued Tier-1 hybrid- bond securities) while risk-weighted assets rose modestly as the pace of lending to consumers and to small- and medium-sized companies slowed during the quarter.* Please refer to the attached PDF for details.
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Mar 10, 2004

Bank Loans Classified as Substandard or Below Rise Modestly in 2003

Figures compiled by the FSS show that bank loans classified as substandard or below (SBLs)—substandard, doubtful, or presumed loss—totaled 18.6 trillion won at the end of 2003, up 3.5 trillion won from 15.1 trillion won a year earlier. New SBLs during 2003 totaled 35.2 trillion won, compared with 31.7 trillion won for SBLs that have been resolved or otherwise cleaned up during the year. The ratio of SBLs to the total outstanding loans rose to 2.62% from 2.33% a year earlier. The ratio for non-performing loans was 1.98% for 2003.A breakdown of the SBLs shows that SBLs from corporate borrowers totaled 11.7 trillion won (2.69%), compared with 4.3 trillion won (1.74%) for household SBLs and 2.6 trillion won (10.09%) for credit card SBLs.During 2003, domestic banks resolved or otherwise cleaned up SBLs totaling 31.7 trillion won—11.4 trillion won during the first half of the year and 20.3 trillion won in the second half. Loan write-offs came to 11.2 trillion won or 35.5% of the 31.7 trillion total in 2003, compared with 7.8 trillion won (38.5%) in 2002.As of the end of 2003, Chohung and Kookmin were the only domestic banks whose SBL ratio exceeded 3%. The SBL ratio for nine banks rose while that for eight banks fell in 2003 (see the attached table for the complete list of the banks and their ratios for 2003). The FSS expects all domestic banks to be able to hold their SBL ratio below 3% for 2004 and plans to take supervisory actions to encourage banks to do so.* Please refer to the attached PDF for details.
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Dec 16, 2003

BIS Capital Adequacy Ratio of Domestic Banks : September 2003

The BIS capital adequacy ratio of domestic banks as of the end of September this year averaged 11.32%, compared with 10.82% at the end of March and 11.03% at the end of June. Slower growth of risk-weighted assets (6.3% during the first nine months of this year compared with 14.9% a year earlier) as well continuing capital growth (6.2% since the beginning of the year) are said to have contributed to the quarter-to-quarter increases. The domestic banks’ 11.32% average is comparable to the capital ratios of Japanese (8.9%), German (11.2%), U.K. (11.6%), and U.S. (13.0%) banks.* Please refer to the attached PDF for details.
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Nov 28, 2003

Government to Sell its Stakes in Hyundai Investment & Securities and Hyundai Investment Trust Management to Prudential Financ

The government announced on November 25 that it had reached an agreement with Prudential Financial, Inc. (Prudential) to sell an 80% equity in Hyundai Investment Securities Co., Ltd. (HITC) and Hyundai Investment Trust Management Co., Ltd., a subsidiary of HITC, that the government is to hold after HITC is recapitalized.Under the agreement reached with Prudential, the sale is to be closed by early 2004 after HITC is restructured and recapitalized by the government-run Korea Deposit Insurance Corporation (KDIC) through asset purchases and capital injections. Valuation for the 80% stake to be acquired by Prudential is to be determined at the time of closing based on the cash flows and other business results of HITC for the previous 12-month period. KDIC will continue to hold the remaining 20% stake in HITC with an option to sell those shares to Prudential during a three- year period starting three years after the closing of the sale, whereas Prudential will have the option to buy those shares from KDIC and raise its equity stake in HITC during the same period. The price at which either option may be exercised is to be determined in a manner similar to the valuation to be used for pricing the initial 80% acquisition by Prudential. The agreement also gives Prudential a three-year customary indemnification period following the closing of the sale against potential losses and liabilities.* Please refer to the attached PDF for details.
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Sep 25, 2003

FSC/FSS to Host 28th IOSCO Annual Conference

The FSC/FSS will host the 28th Annual Conference of International Organization of Securities Commissions (IOSCO) in Seoul from October 14 to 17. IOSCO was founded in 1975 to promote efficient and prudential regulation of the world’s capital markets and to establish international standards for the supervision of securities transactions. Since its founding, IOSCO has evolved into a major financial supervisory organization with 171 members from 102 nations. The FSC/FSS has been an ordinary member of IOSCO since 1984. The Korea Stock Exchange and the Korea Securities Dealers Association are affiliate members.The theme for this year’s conference is “New Challenges for Securities Markets and Regulators.” Approximately 400 participants, including senior securities regulators from the member supervisory organizations and individuals active in international financial markets, are expected to be present at the conference.* Please refer to the attached PDF for details.
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Sep 09, 2003

BIS Capital Adequacy Ratio of Domestic Banks

The BIS capital adequacy ratio of domestic banks as of the end of June this year averaged 11.00%, continuing a modestly downward movement that began after reaching 11.68% at the end of 2001. Rising risk-weighted assets relative to bank capital most likely contributed to the drop in the BIS capital ratio. But the end-of-June average is higher than 10.82% at the end of March and suggests the BIS capital ratio will continue to move within a narrow range. The jump in the second quarter was helped by a slowing pace of risk-weighted assets and bank capital increases totaling 2.268 trillion won.* Please refer to the attached PDF for details.
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Sep 17, 2002

Bad Loans Fall Sharply in the Second Quarter

Figures compiled by the 1,565 domestic financial institutions show that, as of the end of the second quarter this year, loans classified as substandard or below (SBLs)—substandard, doubtful, or presumed loss loans—stood at 32.1 trillion won, 5.9 trillion won or 15.5% less than the first quarter total of 38.0 trillion won. The net SBLs or SBLs net of loan loss provisions fell 2.3 trillion won from the first quarter to 13.1 trillion won. Similarly, the ratio of SBLs to the total outstanding loans fell to 4.2% from 5.1%, while the ratio of net SBLs to net total loans (total loans net of loan loss provisions) fell to 1.8% from 2.2% at the end of the first quarter. The amount of non-performing loans (NPLs)— generally loans 3 months or more past due and loans in nonaccrual status—also fell 5.0 trillion won to 29.1 trillion won or 3.8% in the second quarter from 34.1 trillion won or 4.6% in the first quarter. Most of the drop in SBLs in the second quarter came from 4.6 trillion won in loan write-offs, 3.1 trillion won in loan recoveries, and 1.6 trillion won in loans that were reclassified to normal or precautionary from substandard, doubtful, or presumed loss. By lender, banks posted the largest quarterly drop of SBLs at 3.9 trillion won (21.5%), and were followed by non-banking lenders at 1.2 trillion won (9.2%). Insurance and securities companies lowered SBLs by 0.2 trillion won (8.3%) and 0.6 trillion won (13.3%), respectively. Domestic banks held the lowest SBL ratio at 2.4%, and were followed by insurance companies at 4.6% and other non-banking lenders at 10.4%. Securities companies and investment trust management companies (ITMCs) on the other hand posted SBL ratio of 45.9% for the quarter, mainly due to unusual one-time events such as the assumption of bad assets as a result of a merger between a securities firm and a merchant bank.BanksAs of the end of the second quarter, 20 commercial and specialized banks held 14.2 trillion won in SBLs, down 3.9 trillion
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Sep 12, 2002

Improved Financial Structure of Domestic Companies Listed in KSE and KOSDAQ Five Year After the 1997 Financial Crisis

A recent FSC/FSS analysis on the financial structure of domestic companies publicly traded in the Korea Stock Exchange (KSE) and the KOSDAQ showed an overall improvement in debt-to-equity ratios, financial expenses, and profitability in the past five years following the 1997 Asian financial crisis.The analysis indicated that, as of the end of March this year, the debt-to-equity ratio of KSE- and KOSDAQ-traded manufacturing companies had fallen to 174.4% from368.6% at the end of 1997, a level comparable to that found in most leading economies and a clear sign of the financial stability of domestic companies. The principal causes for these positive developments can be traced to the large capital increases through stock issuance during 1998 to 1999 and increases in cash reserves and retained earnings driven by profit-focused business management and strategies beginning in 2001.The drop in net financial expenses -to -sales ratio of domestic companies—from 5.1% at the end of 1997 to 3.1% at the end of the first quarter of 2002 on the back of improved financial strength—was one of the key reasons behind the recent surge in corporate profitability.The emerging trend toward financial stability and improving profitability of domestic companies has been particularly striking in the first half of this year, and there are reasons to believe that this trend is not a temporary phenomenon, but a reflection of the strength of fundamentally restructured domestic companies.As shown in the table below, a comparison of the debt-to-equity ratio, interest coverage ratio, and operating income-to-sales ratio of KSE- and KOSDAQ-traded companies (excluding financial service companies) for the first half of this year versus the first half of 2001 clearly points to the significantly improved profitability and debt-servicing ability of domestic companies.It is also noteworthy that, unlike in the past when corporate profitability was often exaggerated by the sheer size of businesses, the rec
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Aug 14, 2002

Investigation Findings and Disciplinary Action against UBS Warburg and Merrill Lynch Seoul Branch Offices

The FSS conducted partial on-site examinations of the local branches of Merrill Lynch from April 19 to May 10 and UBS Warburg from May 21 to June 17 to investigate allegations of improper disclosures by analysts at these two branches. After a thorough review of the findings, on August 13, 2002, the FSS decided to take following disciplinary action against the subject firms and analysts for a number of violations that have been found through the investigation. These measures will be officially enforced after the FSC approval on Friday, the 16th.- The Seoul Branch of UBS Warburg will receive a “severe disciplinary warning,” which means, in case of a repeated violation, the company can be subject to a business suspension.- The Seoul Branch of Merrill Lynch will receive a “disciplinary warning,” one step below the “severe disciplinary warning.” - UBS Warburg: 15 employees in total, will be penalized, one of whom will receive a severe disciplinary warning, one a suspension of business activity for a limited period of time, four a salary reduction, and the remaining nine a censure.- Merrill Lynch: 6 employees will be penalized; one will receive a suspension of business activity, one a salary reduction, and the remaining four a censure.* This is the first time since its foundation that the FSS has imposed sanctions against branch offices of foreign securities firms and their individual staff of measures above a salary reduction.The FSS will continue to carry out investigations on both domestic and foreign securities firms for any possible unlawful business conduct in order to reinforce market discipline.* Please refer to the attached PDF for details.
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May 09, 2002

Retracting Chairman`s Statement on Prudential Financial Inc.`s Due Diligence on Hyundai Financial Units

The FSC would like to retract Chairman Lee, Keun-Young’s statement made this morning on May 9, 2002, saying Prudential Financial Inc. had begun due diligence on three Hyundai financial companies.Chairman Lee meant to say that Prudential had expressed its interest in doing so, but the company has not officially proposed any specific details on this matter. * Please refer to the attached PDF for details.
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Apr 30, 2002

A Cooperative MOU between the Market Watchdogs of Korea and France Was Signed in Paris

A cooperative MOU between the market watchdogs of Korea and France was signed in Paris.The FSC signed a cooperative MOU on April 30, 2002 in Paris, with the Commission des operations de bourse (COB), the Market supervisory authority of the Republic of France. This MOU, signed by Standing Commissioner of the FSC, and Chairman of the COB, will provide a basis to set up and implement a system for mutual assistance and exchange of information between both authorities in order to facilitate the performance of the functions they are entrusted with in the fields of investor protection and market discipline.The conclusion of the MOU is in line with the recommendations made by international organizations such as the BIS and IOSCO, for mutual cooperation between supervisory authorities, whose jurisdictions have cross-border financial institutions. The FSC has been an active participant of international regulators’ meetings since its establishment in 1998 and has formed MOUs (or high-level dialogue agreements) with supervisors in several jurisdictions including the U.K., Germany, Japan, China, and Vietnam.Following the signing ceremony, Standing Commissioner YANG, Cheon-Sik had a meeting with Chairman Michel Prada, to exchange their views on both countries’ financial supervisory systems. Mr. Yang is also scheduled to meet with officials from the French bank supervisory agency, Commission Bancaire (CB), to discuss ways of concluding a cooperative tie.* Please refer to the attached PDF for details.
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Apr 25, 2002

High-Level Dialogue between the FSA of the U.K. and the FSC/FSS of Korea held in Seoul

The third annual high-level bilateral dialogue between the Financial Services Authority (FSA) of the U.K., and the Financial Supervisory Commission (FSC) and the Financial Supervisory Service (FSS) of Korea was held in Seoul, Korea, on April 24. Mr. Howard Davies, the Chairman of the FSA, led the U.K. delegation to Korea. Mr. Keun-Young Lee, the Chairman/Governor of the FSC/FSS led the FSC/FSS. The bilateral dialogue covered recent regulatory approaches and this year’s supervisory agenda of both countries as well as specific supervisory issues relating to Korean financial institutions operating in the U.K., and the U.K. financial institutions operating in Korea. The meeting also included discussions on the New Basel Accord planned to be introduced in 2006, consumer protection, supervisory issues related to e-money, and investigation of unfair securities trading. The meeting was very successful with both supervisory authorities agreeing to maintain a close dialogue on regulatory developments in both countries. The next high-level dialogue is set to be held in London in 2003. * Please refer to the attached file for details.
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Apr 15, 2002

Removal of 5 Banks from Prompt Corrective Action (PCA)

During the second phase of financial restructuring in the latter half of 2000, the government and FSC/FSS provided and pursued management normalization plans for eight banks under PCA (Korea Exchange, Chohung, Hanvit, Peace Bank of Korea, Cheju, Kyongnam, Kwangju and Seoul) based on the evaluation results of the ad hoc management evaluation committee. Following a recent evaluation of these banks’ performance since the plans were implemented – excluding Peace Bank, whose banking business was merged into Hanvit Bank in late 2001 – the FSC/FSS concluded 5 of these banks would be removed from PCA. As part of their normalization plans, 6 of the 8 banks excluding Korea Exchange Bank and Chohung Bank underwent a complete capital reduction. Afterward, they were injected with a second round of public funds in the form of equity participation in December 2000 and capital contributions in September 2001, totaling 7.1 trillion won. As a result of the second phase of restructuring in the banking sector, management performance of these banks such as financial soundness significantly improved through injection of public funds and self-restructuring efforts. A foundation of “clean banks” has been established through clearance of large amounts of ailing assets, and stabilization of financial markets and restoration of the intermediary function of financial companies have contributed to the recovery of the real economy. The evaluation of the 8 banks’ overall performance as of the end of 2001 by the FSC/FSS included a comprehensive review of these banks’ satisfaction of the basic requirements for removal from PCA such as a minimum BIS capital adequacy ratio of 8% and a grade 3 or higher on the CAMELS evaluation, as well as their management improvements such as advancements in corporate governance and introduction of a risk management system. The FSC/FSS concluded from the evaluation results that 5 banks (Korea Exchange, Chohung, Hanvit, Kyungnam and Kwangju) would be rem
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Mar 21, 2002

Bad Loans Sharply Fall in 2001

As of the end of 2001, the total amount of substandard or below loans (SBLs) at 1,550 financial companies stood at 35.1 trillion won, a drop of 29.5 trillion won (45.7%) from the 64.6 trillion won recorded at the end of 2000. The net amount of SBLs— total SBLs less total loan loss provisions—also fell 16.3 trillion won to 15.3 trillion won. As a result, the proportion of SBLs to total loans fell 5.0 percentage points from 10.4% to 5.4%, and the ratio of net SBLs to net total loans (total loans less loan loss provisions) fell 2.9 percentage points from 5.4% to 2.5% during the period. The total amount of non-performing loans (NPLs)—the sum of loans 3 months or more past due as well as loans in nonaccrual status—also fell 18.9 trillion won to 31.3 trillion won in 2001.Overall, the yearly drop in SBLs was mainly due to the disposal of bad loans through ABS (16.7 trillion won), extensive write-offs (14.8 trillion won) and loan recovery (10.0 trillion won). * Please refer to the attached file for details.
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