Press Releases - Financial Services Commission

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Sep 18, 2011

FSC Suspended Seven Mutual Savings Banks

The Financial Services Commission (FSC) held a provisional meeting today and decided to suspend business operations of seven mutual savings banks – Jeil, Jeil II, Prime, Daeyeong, Ace, Parangsae, and Tomato – for six months.According to the result of the inspection by the FSS, six of the suspended savings banks – Jeil, Prime, Dae Young, Ace, Parangsae, and Tomato – were found to have their BIS capital adequacy ratio below 1%, and their debts exceed assets.As the plans for normalization submitted by the six savings banks were disapproved by the review committee, they were determined as insolvent and ordered to raise their capital adequacy ratios and normalize their businesses within 45 days in order to resume their operations.Jeil II was suspended because ①its BIS capital adequacy ratio is below 1%; ②there is a strong likelihood that the suspension of its parent company, Jeil, will lead to depositors’ bank runs, causing liquidity crunch; and ③it requested suspension.*Please read the attached file for details.
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Sep 15, 2011

FSC Chairman Gives Keynote Speech at the Economist Conference

FSC Chairman Kim Seok-dong attended The Bellwether Series: South Korea hosted by the Economist Intelligence Unit under the theme “The future of finance in Asia-Pacific” at the Grand Hyatt Seoul on September 15, 2011 to deliver his keynote address “Korea’s Financial Sector Development and Key Policies Ahead.”The conference, attended by more than 150 participants including the FSC, MOSF, the BOK, ADB, Moody’s, foreign ambassadors and CEOs, was aimed to help foreign opinion leaders residing in Korea better understand Korea’s economic and financial policies and stimulate foreign investment in Korea.*Please read the attached file for details.
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Sep 09, 2011

FSC/FSS to Host 18th Annual Conference of the IAIS

The Financial Services Commission and the Financial Supervisory Service of Korea (FSC/FSS) will host the 18th Annual Conference of the International Association of Insurance Supervisors (IAIS) from September 29 to October 1, 2011, at the COEX Convention Center in Seoul. Approximately 500 insurance supervisors and industry representatives as well as senior officials from international organizations including the IMF and World Bank are expected to attend this year's conference. The theme for this year's meeting is "Toward a New Horizon for Insurance Supervision: Cross-Sector Cross-Border Harmonization and Cooperation," and discussions on wide-ranging supervision and industry issues and topics including insurance standards, risk management, and consumer protection are scheduled.The 2011 Annual Conference will be the third international conference on insurance supervision that the FSC/FSS hosts after the Asian Forum of Insurance Regulators in June 2007 and the IAIS Triannual Meetings in June 2008. The FSC/FSS is pleased to host this year's meetings and welcomes all IAIS members, observers, and guests to Seoul for the important gathering. As this year's Annual Conference demonstrates, the FSC/FSS will continue to support and contribute to the mission of the IAIS to set effective global insurance standards and facilitate supervisory cooperation across countries.Established in 1994, the IAIS is the international insurance standard-setting body representing insurance regulators and supervisors from 190 jurisdictions in some 140 countries and works closely with other financial sector standard-setting bodies and international organizations such as the Basel Committee on Banking Supervision and the International Association of Securities Commissions to contribute to global financial stability. It is headed by Executive Committee with members representing various geographical regions and supported by three key committees in its work of issuing global insurance principles, stand
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Sep 05, 2011

Hotline Established among Financial Authorities in Korea, China and Japan

FSC Vice Chairman Shin Je-Yoon will be hosting a vice-minister-level conference call on September 6 at 10am with China Banking Regulatory Commission (CBRC) and the Financial Services Agency (FSA) of Japan.*Attendees: Shin Je-Yoon, Vice Chairman, Financial Services Commission, KoreaWang Zhaoxing, Vice Chairman, China Banking Regulatory Commission, China Masamichi Kono, Vice Commissioner, Financial Services Agency, JapanThe conference call was arranged out of shared recognition that close cooperation among the financial authorities in Korea, China and Japan has become all the more important in order to effectively respond to financial crises as anxiety heightens in global financial markets due to concerns about fiscal soundness of the US and Europe.*Korea first proposed to establish Korea-China-Japan hotline among the financial authorities, which was welcomed by China and Japan.Discussions will be made on the current conditions of the global economy and financial markets; and future outlook of the global economy. We will also exchange our opinions about each country’s current domestic financial market issues; and discuss details about how to operate the hotline such as whether to hold conference calls on a regular basis.*Please read the attached file for details.
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Aug 09, 2011

Temporary Ban on Short Selling

The Korean stock market has declined for six consecutive days since August 2, amid growing concerns over the possibility of U.S. economic recession and spreading of the European fiscal crisis.*KOSPI: 2172.31p (Aug. 1) → 1801.35p (Aug. 9), ∆370.96p (∆ 17.1%)In particular, over two days from August 8 to 9, the KOSPI has dropped 142.4 points, or7.44 % as the aftershock of the downgrade of the U.S. sovereign rating significantly increased volatility in the market.*There were the 5-minute suspensions of trading in the KOSPI market (“sidecars”) and the 20-minute suspensions of the Kosdaq market (“circuit breakers”) for two consecutive days.Short sales are significantly increasing in the falling markets, spreading market anxiety. The amount of short sales, which was KRW100 billion per day on average in the first half of this year, has recently surged over KRW 400 billion, exceeding the previous record high of KRW 234.6 billion since September 2008. Short sellers are mostly foreigners and institutions. From August 2 to 5, they sold an average of KRW 314.7 billion per day in short selling, accounting for 96.7% of the total short-selling transactions.Against this backdrop, the FSC has decided to temporarily ban short selling of all listed stocks in the Korea Exchange and Kosdaq markets for three months from August 10 to November 9.* In response to the global financial crisis in 2008, the FSC banned short selling of all listed stocks, starting October 1, 2008; and lifted the ban on non-financial stocks from June 1, 2009, while keeping the ban on financial stocks.During the same period of the three months, the FSC will temporarily ease restrictions on the amount of equities that securities issuers can buy back their own.* Please read the attached file for details.
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Jul 26, 2011

Revision Bill of the Financial Investment Services and Capital Markets Act

BACKGROUNDThe Financial Investment Services and Capital Markets Act (“FSCMA”) was established in 2007 as a comprehensive overhaul of capital markets regulations in order to promote autonomy and innovation in capital markets.Since the FSCMA took effect in February 2009, however, we had to weather the impacts of the global financial crisis. As a result, we still fell short of bringing about innovative changes that we initially intended with the enactment of the FSCMA such as creation of globally competitive investment banks (IBs).Meanwhile, after the financial crisis, global discussions on strengthening financial regulations and global coordination have been underway; and now is the time for us to domestically carry out what we have discussed at the global level.Against this backdrop, we see this is the right time to lay the foundation for the future of Korea’s financial industry, while coping with current global and domestic financial issues (e.g. Europe’s fiscal crisis, Korea’s household debts).The FSC has drafted a revision bill of the FSCMA, made public for 20 days from July 27 to August 16.KEY REVISIONS TO THE FSCMAI. Development of Korean IBsFor the development of home-grown investment banks capable of financing new growth industries and large overseas projects,1. Securities companies that meet certain statutory requirements such as equity capital and risk* management capability will be qualified as investment banks (or “comprehensive financial investment services providers”).*Given that securities companies can start prime brokerage services just with a revision of the FSCMA Enforcement Decree, the minimum amount of equity capital for a security firm to provide investment banking services will be set at 3 trillion won, which could be further raised later depending on developments after the revision of the FSCMA.2. The revision bill has regulations on corporate lending, internalization of order execution in place in order to help IBs provide a comp
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Jul 20, 2011

Approval for Opening BBVA's Seoul Branch

Pursuant to Article 58 of the Banking Act, the FSC has approved BBVA’s application to open its branch in Seoul. With KRW 3 billion in capital A (initial operating capital), its Seoul branch will run banking business with focus on corporate lending and trade finance.The Banco Bilbao Vizcaya Argentina (BBVA), headquartered in Bilbao Spain, runs banking businesses in southern Europe and Latin America. As of end- 2010, its assets totaled 552.7 billion euros, and its BIS capital adequacy ratio was 13.6%.According to The Banker magazine’s Top 1000 World Banks ranking 2011, the BBVA ranked the world’s 28th by tier 1 capital and the 35th by assets.With the opening of BBVA Seoul branch, for the first time as a Spanish bank, there will be 38 foreign banks (16 countries) with a total of 54 branches operating in Korea.* Please refer to the attached PDF below.
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Jul 04, 2011

Plans for the Soundness of Savings Banks' Management

CURRENT CONDITIONS OF SAVINGS BANKS(Assets) As of end-March 2011, total assets of 98 mutual savings banks in operation were KRW74 trillion, down 2% from KRW75.5 trillion at the end of 2010.Mutual savings banks’ operations are still focused on extending real estate-related loans including PF loans, which accounts for 42.8%* of their total outstanding loans as of end-March 2011.(*cf. 44.7% at the end of 2010)(Deposits) As of end-March 2011, mutual savings banks received a total of KRW 64.4 trillion in deposits, down 2.8% from KRW66.3 trillion at the end of 2010.(Soundness) As of end-March 2011, the delinquency ratio of mutual savings banks rose to15.8%, up 1%p from 14.8% at the end of 2010, mainly due to rise in the delinquency ratio for real estate –related loans.*As of end-March 2011, the delinquency ratio for real estate loans rose to 20.4%, up 2.4%p from 18.0% at the end-December 2010.Despite incurred losses of savings banks, the BIS capital-adequacy ratio rose to 10.25%, up 0.42%p from 9.83% at the end of 2010, backed by continued efforts for recapitalization.* With losses of seven savings banks whose operations were suspended added, the BIS ratio combined would drop to around 7%. (as of end-March 2011, 7.57%, lower than 9.14% in June 2010)(Profitability) Due to the sluggish real estate market and growing competition in the retail financial sector, mutual savings banks recorded a total of KRW333.3 losses from July 2009 to June 2010; and KRW48.7 billion from July 2010 to March 2011.* From July 2010 to March 2011, 67 savings banks (68.4%) posted profits while 31savings banks (31.6%) incurred losses.PLANS TO ENHANCE THE SOUNDNESS OF SAVINGS BANKS’MANAGEMENT1. To help mutual savings banks’ “soft landing”- Additional purchase of non-performing PF loans from savings banks: As of June 20, the government purchased non-performing PF loans worth KRW1.9 trillion through the Restructuring Fund and singed an MOU with savings banks to help them normalize their oper
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Jun 30, 2011

Guidelines on Covered Bond Issuance

BACKGROUNDThe FSC/FSS set up guidelines on the issuance of covered bonds by banks, as one of follow-up measures to implement the Comprehensive Measures on Household Debt. The guidelines are intended to provide a framework for covered bond issuances, diversifying banks’ financing instruments and encouraging banks to offer more long-term and fixed-rate mortgage loans instead of short-term and floating-rate ones.KEY CONTENTS1. Definition of Covered BondsCovered bonds are a type of bonds backed by a cover pool of assets that the issuer provides as collateral. In the event of default, investors are guaranteed dual recourse to both the pool and the issuer.**The issuer is responsible for repaying the covered bonds and should offer investors a preferential claim to the cover pool.2. Requirements for Issuance of Covered Bonds(Issuers) Covered bond issuers must be banks with the BIS ratio over 10% (as of the end of the previous fiscal year) or securitization entities created by such banks.(Issuance volume/maturity) An issuer is not permitted to issue covered bonds in excess of 4% of the issuer’s total liability. Maturities of covered bonds range from one year to 30 years.3. Requirements for Cover Assets(Cover assets) A cover pool should be composed of mortgage loans that meet certain criteria* and mortgage-backed securities (MBS) issued by the Korea Housing Finance Corporation (KHFC). An issuer must maintain at least 5% of the total value of outstanding issuance as excess collateral.*prime mortgage loans; mortgages of more than 120% of the value of their property; loan-to-value (LTV) ratio of less than 70%; late payments of less than 60 days, etc.(Evaluation of asset eligibility) An issuer must evaluate eligibility of cover assets on a quarterly basis and provide investors with results of the evaluations. Disqualified assets in the pool should be replaced by qualified assets.(Long-term mortgage loans with fixed rates) An issuer must ensure that the cover pool is not compo
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Jun 29, 2011

Comprehensive Measures on Household Debt

PROGRESS BRIEFThe government has responded to household debt problems with a series of policy measures in order to enhance the soundness of household debt and financial institutions and at the same time to ensure low-income households’ access to loans.- The application of debt-to-income (DTI) limits for mortgage loans, which had been temporarily eased until last March, was reinstated starting April.- Measures to Encourage Sound Competition among Credit Card Companies (Feb. 9); Measures to Curb Credit Card Companies from Excessively Expanding Their Businesses (June 7)- Measures to Ensure Low-Income Households’ Access to Loans (April 15)DIAGNOSIS OF THE CURRENT HOUSEHOLD DEBT LEVELSAs of end-March 2011, Korea’s household debt reached KRW 801.4 trillion with an annual growth rate of 13% on average since the Asian financial crisis, exceeding the nominal GDP growth rate of 7.3% over the same period.The growth of household debt during the post-crisis period is attributed to the combination of various factors such as low interest rates, abundant liquidity, expectations about rise in real estate prices, and excessive lending by financial institutions.With all the conditions – the soundness of household debt, the proportions of loans extended to borrowers with good credit ratings, loss-absorbing capacity of financial institutions, and household asset holdings – taken into account, we see the current levels of household debt still “broadly manageable.”However, we cannot rule out a possibility that household debt problems would turn into threats to Korea’s economy and financial markets unless we take preemptive measures; therefore, the government came up with a package of measures to contain potential risks of household debt.FINANCIAL POLICY MEASURES ON HOUSEHOLD DEBT1. Measures to keep household debt growth at a manageable paceA. For the banking sector- Apply higher BIS risk weights to high-risk mortgage loans or excessive loans disproportionately concentrated
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Jun 15, 2011

Revision of Loan-loss Reserve Requirements on Credit Card Assets

The Financial Services Commission (FSC) made a resolution at the eleventh meeting held on15 June 2011 to revise the Regulation on Supervision of Specialized Credit Financial Business and the Regulation on Supervision of Banking Business on loan-loss reserve requirements for credit card assets.BACKGROUNDThe ratio for provisioning varies depending on the classification of the loans in question.* Applying equal loan-loss provisioning ratio for sales on credit and card debts (card loans, cash advance, revolving), which differ in delinquency ratio** and loss ratio, could be potentially problematic.*Loan loss provisioning ratio: Pass- 1.5%, precautionary- 15%, substandard- 20% doubtful- 60%, estimatedloss- 100%** Delinquency ratio as of 2010: credit sales (0.9%)/ card loans (2.2%)Total outstanding credit card debt at the end of 2010 marked a sharp increase of 19% from a year earlier, far more than a 6.3% increase in total household debt over the same period. This brings about the need for stronger risk management of credit card assets by differentiating the criteria for loan loss provisioning by card asset.REVISIONConsidering higher loss ratio on card debts than credit card sales, different ratios of loan loss provisioning will apply for each type of assets.Loan loss provisioning ratio will significantly rise for credit sales excluding pass class of assets and card debts, reflecting expected loss ratio.Revised loan loss reserve requirements (Unit: %) Classification # of months delinquent Current Revised Credit sale Credit loan Credit sale Credit loan Pass 1 1.5 1.1 2.5 Precautionary 1~3 15 40 50 Substandard 3 20 60 65 Doubtful 3~6 60 75 75 Estimated loss 6 100 100 100 The FSC expects the revision to effectively enhance credit card companies’ ability to absorb losses and prevent excessive competition to expand card debts as the burden of loan loss provisioning for card debts increases*.* According to an analysis of top five credit card companies, additional loan-loss res
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Jun 08, 2011

Progress Report on the Private Equity Funds Market in Korea

BACKGROUNDPrivate Equity Funds (PEFs)* were introduced to Korea’s capital markets with the amendments to the Indirect Investment Asset Management Business Act (integrated into Financial Investment Services Capital Markets Act in 2007) on December 6, 2004 in order to promote corporate restructuring, MAs and to diversify investment instruments.* A private equity fund, structured as limited partnerships, typically makes investments in companies, funded with the capital raised from a few investors, and sells companies for high returns after value improvement.The domestic PEF market has gone through its introductory period from 2004 to 2007 and is now in its take-off stage. As of end-2010, there were 148 PEFs registered with a total of KRW 26.6 trillion in committed capital.*As of end-May 2011, the number of PEF firms rose to 167 with KRW28.9 trillion in investment commitments.REVIEW OF THE PAST SIX YEARS1. Fund raisingThe number of PEFs has been on the steady rise since its introduction in 2004 and reached 148 as of end-2010.In particular, for the past three years after the global financial crisis, the number of PEFs grew by 104, up 236% compared to end-2007, as more companies determined it to be the right time for investments.Their capital commitments and actual investments also increased to KRW26.6 trillion and KRW16.7 trillion at the end of 2010, up 197% and 234%, respectively, from 2007.- Capital Commitment: Investors’ obligation to provide a certain amount of capital to a PEF for investments at the time of fund formation- Actual Investment: The sum of investments into the target made through equity financing and debt financing- Capital Drawdown: The portion of capital committed to a fund that is drawn down over time2. InvestmentsPEFs expanded their investments from Korean manufacturing companies (212) to foreign companies, which totaled 25 as of end- 2010. They are also diversifying overseas investments*, shifting their focus away from the United States and ind
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Jun 07, 2011

Tougher Regulations to Prevent Excessive Competition among Credit Card Companies

The Financial Services Commission and the Financial Supervisory Service have unveiled tougher regulations to pre-empt possible problems caused by excessive competition among credit card companies (including banks with credit card units) in pursuit of external growth such as excessive credit card issuance and card lending.1. The regulator will limit the external growth of credit card companies to an appropriate level.To this end, the regulator will set up supervisory guidelines for three categories - card assets, new credit card issuance and marketing expenses (ratio) . For a company that continues to seek external growth excessively, a special examination will be conducted. If any violation is found, strict sanctions including suspending business and reprimanding CEO will be imposed.2. The regulator will revise fundraising-related regulations including the introduction of new rules on leverage (total assets/equity capital) so that credit card companies can pursue a “healthy” growth based on strong capital.*Please read the attached file for details.
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May 27, 2011

Additional Measures to Improve the Soundness of ELW Market

BACKGROUNDAs Korea’s ELW market has rapidly grown in a short period of time, problems such as overheated investment and soaring investment losses have surfaced; therefore, the FSC introduced some measures (e.g., introduction of mandatory investor orientation course, stricter assessment of LP performance and preventive measures against potential unfair trading practices) in November 2010 to create a sound market environment for ELW trading.Since the implementation of the measures above mentioned, the trading values of ELWs declined somewhat as shown below:* KRW 1.7 trillion (Aug 2010) → KRW 1.9 trillion (Sep 2010) → KRW 2.0 trillion (Oct. 2010) → KRW 1.6 trillion (Nov. 2010) → KRW 1.4 trillion (Dec 2010) → KRW 1.3 trillion (Mar 2011)* Daily average number of suspicious trading: 0.84 cases (Oct 1, 2011 ~ Dec 10, 2010) → 0.13 cases (Dec 13, 2010 ~ Feb 28, 2011)However, despite these measures, as a result of some securities companies giving a preferential treatment to scalpers (the prosecutor pointed out that some scalpers bribed the securities companies so that they could have access to dedicated lines to route their orders faster than others), concerns about the soundness of ELW market have resurfaced. Against this backdrop, and we plan to adopt the following measures.PLANS TO IMPROVE CURRENT PRACTICES RELATED TO ELW MARKET AND ORDER ROUTING SPEED◈ Basic deposit requirement will be introduced as an entry barrier to ELW market investment and existing market practices will be revised to help investors easily compare ELW prices.◈ In regard with speed of order routing, brokerages will be allowed to provide only a reasonable range of service to make sure all investors can have a stable and equal access to trading system.I. SOUNDER MARKET ENVIRONMENT FOR ELWS1. Stronger Protection for Investors A. Basic Deposit RequirementIn most of derivatives trading, investors are required to make basic deposits in addition to margins.* However, for ELWs and buying opti
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May 19, 2011

Korea to Chair FSB T/F on EMDE Issues

BACKGROUNDThe G20 leaders at the Seoul Summit held in November 2010 agreed to put financial regulatory reform issues viewed from the perspectives of emerging countries on G20 agenda ,and asked the FSB, IMF and World Bank to submit a progress report prior to G20 Cannes Summit in November 2011.Recognizing that G20 discussions had been mainly focused on how to overcome financial crises in advanced countries, Korea proposed that financial issues relevant to emerging countries need to be more actively discussed at the G20 meetings.TASK FORCE FOR EMERGING MARKET AND DEVELOPING ECONOMIES (EMDES)Against this backdrop, the FSB created a task force to deal with EMDE-specific issues in March 2011. The T/F is to select financial regulatory issues from the perspectives of EMDEs and make relevant policy recommendations.Groups of technical experts will be created within the T/F to conduct in-depth reviews on specific issues.** management of capital flows and foreign exchange risks, prudential oversight on global financial institutions, supervisory cooperation between home and host countries, implementation of international standards, development of capital markets, etc.The T/F is composed of international organizations (IMF, World Bank, BCBS, IAIS, IOSCO, BIS, ECB); and FSB members (Korea, the U.S., Canada, Japan, China, India, Brazil, Indonesia, Mexico, Russia, Saudi Arabia, Spain, North Africa, Argentina, etc)Korea’s FSC was appointed as chair of the T/F in May 2011, and FSC Standing Commissioner Sangche Lee will be representing Korea and preside over discussions in the T/F.The T/F is scheduled to submit an interim report to FSB Plenary Meeting on July 19, 2011. The report will be circulated to FSB regional consultative groups for review by September, and the final report will be completed prior to G20 finance ministers’ meeting in October and G20 Summit in November.*Please read the attached file for details.
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May 17, 2011

Privatization Plan for Woori Finance Holdings

BACKGROUNDThe Public Funds Oversight Committee has held the 34th Meeting today and decided to re-initiate the sale of the Korea Deposit Insurance Corporation’s 56.97% stake in Woori Finance Holdings.GENERAL PLANA. Upholding the three main principles for the saleThey are as follows: Maximizing the recovery of public funds; Speeding up the privatization process; and Contributing to the development of the domestic financial sector.B. Selling the group as a packageThe committee has come to a conclusion not to sell the group’s subsidiaries separately, instead put the group up for sale in its entirety with ten of its subsidiaries intact. This is to simplify the sales procedure and minimize uncertainties of the process.C. Setting the minimum bid of 30%To reaffirm government’s intention to sell the group’s controlling stake, the minimum bid acceptable on the Letter of Intent is set at 30% of the group’s total share.D. Cancelling the MOU held by KDICThe KDIC’s MOU governing the Woori Finance Holdings will be either cancelled or alleviated depending on the reduction of KDIC’s stake.SCHEDULEThe public notice of sale for the group will be announced on May 18, and LOIs will be accepted for six following weeks ending on June 29.*Please read the attached file for details.
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May 17, 2011

Internal Rules on Corporate Governance in Banks

BACKGROUNDCorporate governance in banks can have a significant impact on the interests of shareholders and customers; therefore, banks’ governance rules need to be made public.In order to enhance the transparency of banks’ corporate governance, the FSC has revised the Banking Act on November 18, 2010 to require banks to establish and publicize their internal rules on corporate governance. Banks are required to have internal governance rules in place by May 17, 2011 and make a public notice on their websites and the Korea Federation of Bank’s.MAIN CONTENTS OF INTERNAL GOVERNANCE RULESBanks are given discretion to stipulate more details about what they are mandated under the Banking Act (Article 23-4) and the Enforcement Decree (Article 17-4) of the Banking Act.1. Executives(mandatory) qualifications for executives, principles and procedures for appointment and retirement of executives, training programs for executives and candidates, performance evaluation(optional) qualifications for key executive members of banks e.g. president, vice president, and auditor *; developing a “management succession program”***Given that the mandatory introduction of age limits for executives might undermine the autonomy of banks’ management and basic rights of executives, whether to introduce age limitations for executives is left to the discretion of each bank. For consecutive terms, however, stricter standards based upon performance evaluation during preceding terms will be applied to candidates’ qualifications to be reappointed.** The succession program will include how to elect substitutes or successor in the absence of executives; how to select candidates for executives; and how to utilize results of training and performance evaluation, etc.2. Composition and operation of board of directors(mandatory) composition of the board, qualifications for directors, standards and procedures for appointment and retirement of directors, evaluation of performance of the board(opt
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May 02, 2011

Project Financing Stabilization Bank

1. IntroductionThe main purpose of creating the Project Financing Stabilization Bank (“the PFS Bank” hereafter) is to create an entity where all the project financing loans taken out on a project construction site can be pooled together and purchased by one bank, thereby simplifying the valuation and enabling the PFS Bank to take firm actions to restructure and stabilize the industry on an individual project basis.2. Form of establishmentUAMCO(United Asset Management Company), the formerly established private company funded by a group of commercial banks to purchase non-performing loans, will act as the General Partner whereas commercial banks that have lent to the particular project site will act as Limited Partners.3. Participating institutionsBanks that want to sell-off their PF loans.4. Target purchasePriority will be given to commercial-banks-lent PF loans given to contractors currently going under the workout programs. Project sites that have more than 75% of PF loans from commercial banks will be at the top of the purchase list.5. Purchase priceThe purchase price of PF loans will be set at market price negotiated by participating banks.6. Estimated size of the first PFS BankAlthough further analysis needs to be made, exempting project sites that are making progress through their self normalization process, among estimated KRW 1.6 trillion of loan amount by project sites that have borrowed more than 75% of PF loans from commercial banks, setting aside loans that are hard to negotiate a price on, there are roughly KRW 1.0 trillion worth of loans to be purchased by the first PFS bank.7. Funding requirementThere are principally two types of funding requirements for the newly created PFS Bank which will essentially be a private equity fund: costs to purchase the insolvent PF loans; and new funds required to stabilize and revitalize the project site. Participating banks will fund the purchase of insolvent PF loans, and the PFS Bank itself will raise additional
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Apr 18, 2011

Measures to Enhance Low-income Households' Access to Financial Services

BackgroundThe FSC has announced a set of measures to lower financial costs of low-income earners and strengthen the financial safety net. The measures are part of our preemptive efforts to make sure the government’s counterplan against household debt would not curtail low-income households’ access to financial services.Key Contents1. The FSC plans to provide a total of KRW 3.2 trillion this year to support three major microcredit programs: Smile Microcredit; Sunshine Loans; and New Hope Loans2. Credit inquiry records would be no longer taken into the assessment of individuals’ credit ratings.3. Overdue payments of less than KRW 100,000 would no longer affect borrowers’ credit ratings.4. Overdue payments of less than 90 days would be reflected only for three years, currently reflected for five years, in the assessment of borrowers’ credit ratings if debts are fully repaid.5. The FSC will put a cap on loan brokerage fees and strengthen the crackdown on illicit brokerage practices.6. The FSC will lower the ceiling of annual interest rate on loans by financial institutions and private money lenders from the current 44% to 39%.7. The FSC will extend the operation of pre-workout program by two years.8. The FSC will enlarge the scope of beneficiaries of transfer loans that switch outstanding loans with high-interest rates to lower-interest ones, and we will also reinforce the credit recovery program.9. The FSC will expand financial support for those in the credit recovery program to help them stand on their feet if they faithfully perform their duty.10. The FSC will establish a database of financial services for low-income earners and create more education programs to keep them better informed of credit management.Enforcement planThe FSC will take necessary actions to ensure these measures can be enforced as early as possible. However, it would take time to enforce some measures such as setting a cap on loan brokerage commissions that require revisions of related
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Apr 06, 2011

Korean Financial Market Update

1. Recent trends in the stock marketThe KOSPI index, which once fell to a low point of 1,923.30 on March 15 after the Japanese earthquake, has rebounded to a record-high of 2130.43 on April 5, renewing the highest point of 2,115.69 prior to the earthquake.The recent recovery in stock prices is mainly attributed to foreigners’ net buying based on their optimism that the Korean economy is relatively stable amid ongoing external uncertainties such as Japan’s earthquake and political turmoil in the Middle East.2. Foreign investors’ movement in Korean stock exchangeForeigners sold KRW 3.5 trillion in February, the biggest net sale by monthly basis since May 2010, but made net buying of KRW 1.2 trillion in March: notably, net buying of KRW 2.8 trillion after the Japanese earthquake.(By country)Starting this year, there has been a continued outflow of European funds (including the U.K), reflecting ongoing uncertainties in the European region. By contrasts inflows of funds from the U.S. and Asian region have been increasing since March.*As of March, the U.S made a net purchase of KRW 1.3 trillion, Singapore of KRW 0.7 trillion, China of KRW 0.2 trillion*Despite our concern of Japanese capital being pulled back, Japanese made a net purchase of KRW 155 billion instead(By fund-type)In February, all foreign investors except for Asian sovereign funds were net sellers. Starting March, however, the U.S. funds began to make net buying in large volume. Net buying by foreign investors was mostly made after Japan’s earthquake, and European investors (excluding European funds) also turned net buyers of Korean stocks.(By investment period)It has turned out more than half of foreign net buying made after the Japanese earthquake was made by short-term investors. (i.e. investment banks)*Short-term: IB with investment turnover ratio over 500%3. Grounds for foreign investors’ net buyingWithout wider spread of risk from the recent Japanese earthquake and the regional conflict in the
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