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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Jul 09, 2009
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Jun 22, 2009
- Restructuring Plan for SMEs
- BackgroundTogether with large companies with debts of more than KRW50 billion, the companies in construction, shipbuilding and shipping industries are now under a full-fledged restructuring process as credit risk assessment have wrapped up on them. SMEs will also be subjected to restructuring programs through creditor bank-led credit risk assessment.Restructuring ScheduleThe credit risk assessment will be conducted on SMEs in order according to the size of their debts given a large number of firms involved and limited information available for them.The first round of credit assessment will be completed by July 15 on SMEs which have KRW5.0 billion or more in borrowing and are required to have external audit. This includes 5,214 basic assessment target companies out of a total of 10,738 SMEs, excluding public and special purpose corporations, and confirmed 861 companies as detailed assessment target companies according to the following financial factors; 3-year operating cash flow deficit, 3-year interest coverage ratio below 1, precautionary and below companies.The second round of credit risk assessment, which will be finished by the end of September, will center on SMEs that have between KRW3.0 billion and KRW5.0 billion in borrowing and are subject to external audit. Unlike the first round of assessment where only financial factors were considered, the second round is expected to include qualitative factors such as the level of delinquencies, discounted bills, and uncommitted overdraft rates. Qualitative factors will also be applied to companies that underwent the first round of assessment for inclusion in the in-depth assessment.The third round of credit risk assessment is due to be completed by the end of November this year. The assessment will include companies that are not subject to external audit or sole proprietorships with more than KRW 3.0 billion in debt, and those that have between KRW1.0-3.0 billion in debt and are subject to external audit.Each credito
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Jun 11, 2009
- Corporate Credit Assessment Results
- 18 creditor banks have carried out regular assessments of large individual companies with credit facilities in excess of KRW 50 billion sinceApril. In the second stage of the credit assessments, 433 companies were analyzed, and as a result, 33 companies are targeted for restructuring.Of the 33 companies, 22 companies are C-rated which will accept creditor-led workout programs, and 11 companies are D-rated which will have to develop self-normalization efforts and apply for corporate restoration process.Compared to the results from regular credit assessments in previous years*, this year there has been a large increase of companies that are up for restructuring. This is believed to have been resulted from creditor banks’ active efforts for restructuring.*2006/07/08: 3, 7, and 0 respectivelyThe total sum of credit facilities rendered to the 33 selected companies amounts to KRW 3.4 trillion. An increase of KRW 980 billion* of additional loan loss provisioning is expected within the financial sector.*Banks/Mutual savings banks/Credit specialized companies: KRW 830bn, 30bn, 20bn respectivelyThe assessments were originally planned to be completed by the end of June, but have been finalized earlier than expected to speed up the restructuring process. Consequently, the Mediation Committee for Creditor Financial Institutions will head the accelerated process of workout programs on selected companies to normalize operation as soon as possible.Creditor banks will start conducting credit assessments of corporations with credit facilities under KRW 50 billion in July. The Corporate Credit Support Task Force will oversee the operation to ensure that the ongoing restructuring process goes as smoothly and effectively as possible.Please be aware that, to minimize disruptions in regular operational activities of the companies that will undergo restructuring, their identities are not revealed.* Please refer to the attached PDF for details.
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May 20, 2009
- Short Selling Permitted on Non-Financial Stocks
- The Financial Services Commission made a decision today to start allowing short selling transactions of non-financial company stocks beginning June 1.However, for the time being, the ban on short selling for financial stocks will continue to be in effect due to volatility still lingering in the market. These stocks include stocks of banks, securities companies, and insurance companies that are traded in the Kospi and the Kosdaq markets.Furthermore, as stipulated in the Financial Investment Services and Capital Markets Act (FSCMA), naked short selling will not be permitted, but only covered short selling will be permitted.To effectively monitor and supervise the short selling activities, a Short Selling Confirmation System will be placed, as well as Short Selling Execution Guidelines. Systemic Enhancements relating to Short Selling1. Disclosure of short selling and stock borrowing information in the stock market through the Korea Exchange (KRX) and the Korea Financial Investment Association (KOFIA).2. Establishment of Short Selling Confirmation System (March 2009) to effectively enforce short selling regulations. Under this system, an investment broker is required to verify whether he or she has followed the short selling regulations correctly.3. The Execution Guidelines for Short Selling (May 2009) have been drawn up to introduce a concept of ‘net short position’ in order to set a clear standard of what is considered short selling and what is not. The ban on short selling of non-financial stocks will be lifted on June 1, 2009, to give ample time for investors and financial investment companies to conduct preparations.Only the financial investment companies that have completed their preparations according to the guideline measures will be allowed to start placing short sell orders and conduct brokerage transactions for clients.The FSC intends on removing the ban also on short selling of financial stocks given further signs of improvements in the markets.* Please
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May 18, 2009
- 2009 Corporate Restructuring Fund Management Plan
- Amid a global financial crisis, the government has taken a number of steps to facilitate and expedite corporate restructuring of distressed companies in order to dismiss concern of worsening financial soundness of financial institutions. In line with this effort, on May 13, the legislative bill relevant to the establishment of the Korea Asset Management Corporation (KAMCO) was amended to enable the Corporate Restructuring Fund to be set up within the KAMCO. The National Assembly has previously passed a motion on providing debt service guarantees for bonds that will be issued for the envisioned KRW 40 trillion Fund throughout 2009 and 2010.Subsequently, the 2009 Corporate Restructuring Fund Management Plan will be submitted to the National Assembly in late May, after a cabinet meeting held on May 19.The planned amount for the Fund in 2009 is KRW 20.2 trillion, which is subject to changes in further economic developments, whereas the actual total bond issuance for the Fund will depend on the amount of distressed assets it needs to purchase, and prevailing market conditions. The payments for the purchase of the distressed assets will be made by bonds from the Corporate Restructuring Fund, so as to minimize the impact on the bond market. The liquidity support of KRW 120 billion for the companies experiencing temporary liquidity shortage is included in the Fund as well.The majority of the Fund, KRW 20 trillion, will be used to acquire impaired loans from financial institutions and distressed assets from companies undergoing restructuring. This will preferentially include acquisitions of KRW 4.7 trillion of financial institutions’ non-performing loans from project financings and KRW 1 trillion worth of struggling ships that are in operation.The implementation of the Corporate Restructuring Fund is expected to enhance and expedite the restructuring process to preempt deterioration of asset quality of financial institutions. Through effectively utilizing the Fund in the p
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Apr 30, 2009
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Apr 23, 2009
- Restructuring Plans for the Shipping Industry
- 1. BackgroundIn recent years, shipping companies have continuously grown in size* driven by drastic rise in freight rates (Baltic Exchange Dry Index (BDI)).Starting from the end of last year, the business environments have gotten drastically worsened with sudden freefall of freight rates. Consequently, many had to curtail their operations and some became insolvent.For instance, Samsun Logics, the 9th biggest in terms of asset size, filed for petition for a rehabilitation program in February.Although the freight rates have gone up a bit lately, up to 2,084 by March 4, due to prevalent oversupply, a recovery in full scale is deemed difficult.As such, there has been some concern about increasing insolvency among shipping companies as it might burden other related industries, especially shipbuilding or financial companies. Furthermore, their insolvency can be easily spread over to the overall shipping industry because of the complex, multi-layered chartering contracts.Most certainly, if the number of chartering contract cancellation continues to increase, then shipbuilding and financial companies will inevitably face the risk. Therefore, the following restructuring plans, which are to be carried out on a day-to-day, ongoing basis, will help contain increasing insolvency in the shipping industry and to revamp the industry so as to strengthen its competitiveness in the global market.2. Restructuring PlansA. Continuous restructuring of shipping companiesIn line with the existing corporate restructuring procedures* supported by the Corporate Restructuring Promotion Act, creditor banks will conduct credit risk assessment of subject shipping companies on an ongoing basis.*Already, companies whose total loans amount to KRW 50 billion or more are subject to annual mandatory credit risk assessment, due June every year, by their creditor banks.To facilitate the restructuring process, creditor banks will be advised to complete risk assessments by early May this year for shipping c
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Mar 31, 2009
- The Bank Recapitalization Fund - 1st Round Purchase
- On March 31, the Bank Recapitalization Fund Oversight Committee announced that the first round of bond purchase was completed. The total amount of purchase completed, both hybrid and subordinated bonds issued by 8 financial institutions, is KRW3.956 trillion out of the total ceiling amount, KRW 12.3 trillion, set for the first round of support- Hybrid Bonds: KRW 3,453 billion- Subordinated Bonds: KWR 503 billionAdditional bonds from applying banks will be purchased according to their access limit. An MoU is to be signed between the government and each participating bank in order toensure each bank’s full commitment to providing active support to the real economic sectors while prescribing against the government’s management intervention.The government will conduct follow up monitoring for all participating banks as to their commitment to supporting the economy, regardless to their actual use of the Fund.Meanwhile, in order to prevent the Fund from being concentrated in one particular industry, the Fund Oversight Committee will set an industry-based quota for the support from the participating banks.To those banks deemed lagging behind their MoU commitment to supporting the real economic sectors, punitive measures will be applied on the next round of bond purchase such as limiting the amount of purchase, lowering their total access limit, and raising applicable interest rates.* Please refer to the attached PDF for details.
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Mar 30, 2009
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Mar 27, 2009
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Mar 13, 2009
- Preemptive Initiatives to Safeguard the Soundness of Financial Instituitions
- 1. BackgroundAmid deteriorating financial climate in the global economy, much uncertainty in global financial markets has also escalated. Thus, the Korean economy is likely to suffer a prolonged recession, potentially triggering an economic vicious circle starting with corporate and house-hold loan defaults which may hurt the financial sector’s soundness and weaken their lending and overall financial intermediary functions, consequently exacerbating the overall economic basis.Meanwhile, major economies are in the process of preparing or already implementing preemptive measures to support their financial industries by cleaning up non-performing loans and recapitalizing so as to strengthen its intermediary role of supporting the real economic sectors.Notwithstanding Korea’s economy’s relatively strong position, in order to be better prepared for potential risks in case of further deterioration of global market conditions, the government has decided to take preemptive initiatives to strengthen financial institutions’ intermediary functions and to eliminate any potential sources for systemic risks.To do so, early resolution of NPLs in the financial industry has to be preceded to help ascertain its overall soundness. For this, the government already announced its plan to set up a Restructuring Fund under KAMCO in February. On March 13, the government unveils its additional plan to enhance existing regulations to facilitate the government’s rendering greater support to financial institutions in need of further recapitalization. Improved regulations will also allow for launching a government-guaranteed KAMCO bonds in the total amount of KRW 40 trillion. The bills proposing these initiatives will be submitted to the National Assembly in April.Under these new initiatives, financial institutions’ soundness will greatly improve and their ability to shore up real economic sectors will also be strengthened.For the same purpose, the Bank Recapitalization Fund has alre
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Mar 05, 2009
- Restructuring of Shipping Companies
- 1. BackgroundIn recent years, shipping companies have continuously grown in size* driven by drastic rise in freight rates (Baltic Exchange Dry Index (BDI)).Starting from the end of last year, the business environments have gotten drastically worsened with sudden freefall of freight rates. Consequently, many had to curtail their operations and some became insolvent.For instance, Samsun Logics, the 9th biggest in terms of asset size, filed for petition for a rehabilitation program in February.Although the freight rates have gone up a bit lately, up to 2,084 by March 4, due to prevalent oversupply, a recovery in full scale is deemed difficult.As such, there has been some concern about increasing insolvency among shipping companies as it might burden other related industries, especially shipbuilding or financial companies. Furthermore, their insolvency can be easily spread over to the overall shipping industry because of the complex, multi-layered chartering contracts.Most certainly, if the number of chartering contract cancellation continues to increase, then shipbuilding and financial companies will inevitably face the risk. Therefore, the following restructuring plans, which are to be carried out on a day-to-day, ongoing basis, will help contain increasing insolvency in the shipping industry and to revamp the industry so as to strengthen its competitiveness in the global market.2. Restructuring PlansA. Continuous restructuring of shipping companiesIn line with the existing corporate restructuring procedures* supported by the Corporate Restructuring Promotion Act, creditor banks will conduct credit risk assessment of subject shipping companies on an ongoing basis.*Already, companies whose total loans amount to KRW 50 billion or more are subject to annual mandatory credit risk assessment, due June every year, by their creditor banks.To facilitate the restructuring process, creditor banks will be advised to complete risk assessments by early May this year for shipping c
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Feb 25, 2009
- Bank Recapitalization Fund Formation and Operation
- Amid global economic crisis, banks need to take more aggressive roles in supporting real economic sectors and corporate restructuring in a concerted effort to overcome the financial turmoil without hurting Korea’s economic growth potentials.From this perspective, since the beginning of the second half of last year, the government has been raising the issue of launching the Bank Recapitalization Fund as a way to boost banks’ funding and loss bearing capacities.In its report to the President on the annual work plan, the Financial Services Commission announced its plan to form the Fund so as to enable banks to take upon the leading role in shoring up real economic sectors and the on-going restructuring programs.To maximize the effect of the Fund, the government has encouraged banks to provide their feedback on the plan, and based on the ideas gathered thus far, following detailed plans have been finalized.I. Progress in the formation of the FundIn December 2008, the government announced the plan to set up Bank Recapitalization Fund in the amount of 20 trillion won.On February 15, 2009, banks’ CEOs and the regulators met and ran a joint workshop regarding the plan as to ways of making best use of the Fund in providing liquidity to the real economic sectors and their restructuring. General consensus has been reached that banks will be able access the Fund within their credit limits, and banks are free to decide on how to use the funds.Commercial banks, holding companies as well as Industrial Bank of Korea, NACF, and NFFC can apply for the fund.Some recommended usage:a. In support of real economic sectors: by extending new credit lines or roll-overs to SMEs, funding to credit guarantee schemesb. In support of corporate restructuring programs: new credit extension to or funding for the debt-to-equity swap of companies under workout programs, capital injection to the Corporate Restructuring Fund (KAMCO)c. In support of PFs or NPL write-offsOn February 25, 2009 at the
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Feb 19, 2009
- Corporate Restructuring Strategic Directions
- Amid the global financial crisis, with acute awareness of the importance to revamp the overall economic structures in an effort to prevent spread of financial defaults in the markets, the Korean government has decided to pursue quick and effective restructuring measures.The market environment of current crisis, however, is different from that of the 1997 Asian crisis in that there are no major defaults realized in the market, and this makes it more difficult for the government to push forward with one time, full-fledged corporate restructuring as back then.Also, as the global economy has uniformly entered a drastic downturn, the expected efficacy of corporate restructuring progrmas especially in eliminating market uncertainty appears rather limited.With such understanding, the Korean government has built the consensus for the importance of taking clear stances and establishing firm principles in pursuing corporate restructuring in order to maximize the change of its successful outcome.Accordingly, the officials from relevant ministries worked jointly to draft restructuring strategic directions and key action plans, and they were finalized on February 19, 2009 through the discussions at the Presidential Economic Crisis Management Committee meeting.* Please refer to the attached PDF for details.
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Feb 12, 2009
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Jan 20, 2009
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Dec 26, 2008
- “BANK CAPITAL EXPANSION FUND(A TENTATIVE TERM)” SCHEME
- Mainly led by the BOK in consultation with the FSC, the plan to set up the “Bank Capital Expansion Fund” of KRW20 trillion is currently under close review. The target date is January 2009.The fund is not obligatory for commercial banks to subscribe to; it is entirely up to individual banks to decide whether to utilize the Fund.1. Funding SchemeThe capital needed to establish the "Bank Capital Expansion Fund" will be generated from the BOK (approx. KRW10 trillion in loans), investors including institutional investors (approx. KRW8 trillion in investment), and the Korea Development Bank (approx. KRW2 trillion in investment).Funds will be raised on a capital call basis: for each subscription by banks the investing parties will inject the funds in proportion to their commitment ratio.The BOK is currently reflecting on optimal ways to supply funds to the Bank Capital Expansion Fund. Details including the exact amount are to be discussed with the FSC before issuing the finalized scheme.Meanwhile, the government plans to encourage investments from both private and institutional investors in January, reassuring them of the Fund's stability and profitability.2. Management of the FundWhen a bank requests for the funding, the Fund will supply funds in the form of purchasing the bank’s preferred stocks, hybrid capital, or redeemable preferred stocks of banks.To help raise banks' Tier 1 capital, the Fund will buy mainly preferred stocks and hybrid capital. These stocks and capital will be redeemable when the bank exercises the call option after a designated length of period (five years or more). In order to help reduce banks' funding cost the Fund plans to utilize BOK loansTo minimize the external intervention in the subject banks’ management, the Fund will prescribe following requirements:①Seek self-rescue measures, especially to reduce expenses;②Increaselending to low-income borrowers and mid- to long term loans;③ Abstain from asset expansion schemes and increase
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Dec 22, 2008
- Amendments to Accounting Standards for FX Translation
- The Financial Services Commission (FSC), The Financial Supervisory Service (FSS), and The Korean Accounting Standards Board (KASB) have agreed to implement a set of measures namely, "Amendments to Accounting Standards for FX Translation." The FSC and the FSS had been engaged in close consultations with market participants such as companies with large foreign debts, financial institutions, and accounting experts regarding the issue of accounting standard of FX translation and transactions. The proposal was affirmed at the Economic and Financial Meeting on December 19, 2008.I. Background● Due to the recent surge of won-foreign exchange rate Korean companies are experiencing huge FX translation losses in their annual report.* When FX rate increases by KRW 100, companies' FX translation loss and debt each increases by KRW 5trn. (based on US$ 50.16bn of domestic companies' foreign borrowings from foreign exchange banks)▶As a result of the drastic rise of the FX rate, Korean companies are exposed to adverse business environments such as downgrading on their credit ratings, early debts redemption, an increase in financial costs, and difficulty with obtaining new credit lines.▶If this situation sustains, financial institutions will have to suffer deteriorating BIS capital adequacy ratio and reduction in their corporate loan facilities. Consequently, this will further prolong the process of economic recovery from the current crisis.●Therefore, it had been deemed necessary to take timely actions to minimize financial burdens on companies and financial institutions, especially those related to accounting standards.II. Way Forward1. Listed Companies and Large Unlisted CompaniesA. Permission of Revaluation on Property Plant and Equipment (PPE)●(As-Is) Revaluation of PPE has not been permitted since 2001, and asset value increases for the past decade have not been reflected on the books.* Fair Valuation permitted in IFRS (IAS 16)●(Improvement) Revaluation of real esta
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Dec 22, 2008
- Improvements in Derivatives Market Supervision
- BackgroundThe financial crisis spread globally through the asset securitization and credit derivatives that preceded the collapse of the sub-prime market. Local companies and investors also suffered heavy losses from either KIKO contracts or large falls in FX/stock prices. This has created a pressing need for an appropriate supervisory system for the derivatives market, especially in regards to strengthening the competitiveness and developing the soundness of Korea’s capital markets ahead of the expected introduction of the Capital Market and Financial Investment Business Act in February 2009.To this effect, the FSC/FSS established last July a joint private-public Task Force Team with the Korea Institute of Finance (KIF), the Korea Securities Research Institute (KSRI), the Korea Securities Dealers Association (KSDA), the Korea Futures Association (KFA), the Korea Federation of Banks (KFB), Korea Exchange (KRX), the Korea Securities Depository (KSD), and industry specialists.The TF Team produced a detailed plan called, “Improvements in Derivatives Market Supervision” after a series of discussions, including a study by industry experts, Task Force consultations, and IMF technical assistance.Summary of ChangesThe proposed plan outlines 4 main areas with 51 sub-categories.1. Reorganizing the derivatives market monitoring system• Strengthening information analysis and its utilization by itemizing information, setting up a database, and establishing a consultative body of experts2. Strengthening the investor protection by taking into consideration the characteristics of each respective product and investor• Providing greater product descriptions, introducing graded canvassing rules, strengthening protection of small investors and businesses, etc.3. Preventing derivatives-based transactions from overexposing financial institutions and posing systemic risk• Strengthening financial company’s internal controls and establishing systems to reduce derivatives tradi
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Dec 17, 2008
- European Commission Grants Equivalence to Korea
- 1. Contents of European Commission’s DecisionAs of December 12, 2008, the European Commission (EC) granted equivalence to Korea’s Generally Accepted Accounting Principles (GAAP).** Under European Union (EU) regulations, third countries’ issuers must prepare their consolidated accounts in accordance with International Financial Reporting Standards (IFRS) or GAAPs that are granted equivalence with the IFRS by the year 2009. Final decision to grant equivalence of IFRS is made by the EC and requires conformity in the contents of third countries’ accounting standard as well as credibility of each country’s accounting supervisory system.With this decision, Korean companies listed in European markets are able to use their financial statements using Korean GAAP until the year 2011.This decision is due, in part, to Korea’s efforts to adopt the IFRS and the fact that its accounting supervisory system received a positive review from the Committee of European Securities Regulators (CESR).However, the EC will regularly monitor Korea’s IFRS adoption process and its progress.Meanwhile, the EC has determined that the GAAPs of the U.S., Japan, China, Canada, and India are equivalent to IFRS. Like Korea, the GAAPs of Chinai, Canada, and Indiaii will be monitored regularly on its equivalence status.2. Discussion Progress among Regulatory BodiesKorean regulatory bodies have made efforts to receive positive reviews on Korea’s GAAP’s equivalence status.The regulatory bodies have hosted discussion meetings with the CESR and requested that Korea’s GAAP be included in the review of granting equivalence to third countries’ accounting standard.With visits to the CESR, meetings with the evaluation committee, sending evaluation documents, and actively promoting Korea’s commitment to adopt IFRS and efforts to improve its accounting and supervision system, the regulatory bodies received a positive outcome.3. Expected EffectsWith this decision, Korean companies listed in th
