Press Releases - Financial Services Commission

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Dec 03, 2009

UBS Korea CEO/CFO Forum 2009 Luncheon Speech

Ⅰ. Introductory RemarksGood afternoon, ladies and gentlemen!Let me first thank Mr. Jae-hong Lee and Mr. Young Chang of UBS Korea for having me here today.It is also a great pleasure to see so many distinguished business leaders and investors together in one place.We are now coming to the end of 2009, and winter is almost upon us.It has been a year of both despair and hope.But, fortunately, this time around, we are not going to go through the bitter cold we had to bear at the height of the financial crisis last winter.The global economy has been gradually emerging from the panic of a year ago and there is hope ahead.Yet, new concerns, such as fears of another asset bubble and major economies' swelling fiscal deficits, are clouding the outlook for the world economy.In this context, I shall speak today about how the crisis has affected Korea and what the future tasks are for the Korean government.Ⅱ . Lessons from the Global Financial CrisisNow, many wonder what has been the secret behind Korea's vigorous recovery from the crisis.I would say that one unique contributing factor is our experience with a financial crisis a decade ago.This put Korea’s corporate and financial sectors in strong shape and enhanced the government's ability to manage the crisis.And yet, the latest crisis demonstrated that our past experience did not entirely work in our favor.Let me explain.The origin of the 1997 crisis can be traced to internal distortions and distresses built up during decades of rapid economic growth. In contrast, the latest crisis originated from outside Korea.Unlike the major economies that suffered from massive financial implosions, the Korean economy was on a firm footing with healthy corporate and financial sectors.Despite this, the impact of the crisis on Korea was disproportionately large because of the stigma from the 1997 crisis.Some overseas media and investors oddly took the view that a second financial crisis could occur in Korea.This sparked negative percep
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Nov 24, 2009

KDIC sells its stake in Woori Finance Holdings

On 24 November, 2009, the Korea Deposit Insurance Corporation ("KDIC") sold 56,420,000 shares (approximately 7.0% of the total shares outstanding) of Woori Finance Holdings ("Woori") in an after-market block trade sale prior to commencement of trading. The shares were sold to domestic and foreign institutional investors at a price of KRW15,350 per share, resulting in the recovery of KRW866 billion in public funds.Through this transaction, the KDIC has reduced its stake in Woori from 73% to 66%. To date, the KDIC has recovered KRW4.0 trillion of the total of KRW12.8 trillion in public funds it injected into Woori. The KDIC has actively sought to achieve an expedient privatization of Woori through minority stake sell-downs, but has faced difficulties in selling the stake as a result of a sharp decline of share prices amidst the ongoing global financial crisis.However, the recent sustained recovery in Woori's share price and other key factors has helped create a conducive market environment in which the sale could be contemplated. Given this, the KDIC sought and received approval from the Public Fund Oversight Committee for this block trade sale and was able to achieve a highly successful sale of a 7% stake to domestic and international investors.Through this transaction, the KDIC successfully achieved a timely recovery of public funds, underscored the government's strong commitment to the expedient privatization of Woori, and expects to provide future share liquidity in order to enhance the value of the residual stake and optimize future recovery of public funds.* Please refer to the attached PDF for details.
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Nov 19, 2009

Supervision of Financial Institutions FX soundness Strengthened

BackgroundThe soundness of domestic financial institutions’ foreign-exchange management recovered to pre-crisis levels on the strength of the government’s countermeasures and the voluntary efforts of institutions. But insofar as the weak links in their FX management became apparent during the crisis, the need has grown to fine-tune related systems to prevent a crisis relapse even while steps continue to be taken to improve FX soundness. The Financial Stability Board has also proposed to develop measures abating potential risk of systemic instability caused by FX liquidity problems in emerging market economies at the time of crisis.It was in this regard that the government unveiled the ‘Financial Institutions’ FX Soundness Strengthened Supervision’ last September 25 outlining the basic direction of the plan. Nonetheless, this measure is not intended to regulate foreign capital being invested in Korea, but merely an attempt to enhance the soundness of financial institutions.The plan contains two main sections, namely strengthened supervision over the FX soundness of individual financial institutions and strengthened supervision over macro-prudential soundness of FX management.The section on the FX soundness of individual financial institutions outlines six measures to be taken, including 1) fine-tuning the regulation on FX liquidity ratio; 2) establishing new standards in FX liquidity risk management; 3) establishing new standards in FX derivatives; 4) strengthening the long-term resource funding ratio; 5) introducing the regulation on FX asset limits; and 6) encouraging rational FX hedging practices.The component on macro-prudential soundness of FX management includes 1) preemption through strengthened monitoring over FX market; and 2) planning countermeasures during contingencies.To move the plan forward, a joint working team comprised of experts from the FSC/FSS and banks is to subsequently take the lead in formulating detailed guidelines.Financial Instit
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Nov 11, 2009

IGE/IMF International Conference Luncheon Speech

Ⅰ. Introductory RemarksGood afternoon, ladies and gentlemen!Let me first thank Chairman Kim Pyung-Joo and President Nam Chong-Hyun from the Institute for Global Economics (IGE), as well as Mr. José Viñals from the IMF, for inviting me to this occasion.Further, I wish to welcome all of you from Korea and abroad who have given your valuable time to attend this conference.I’m happy to say that there now appears to be some light at the end of the long and dark tunnel of this crisis.I would like to express my gratitude to all of you in the financial sector and to the Korean people.It has been your efforts that have allowed Korea to recover so quickly.Now it is time to refocus the international community’s cooperation and commitment to future-minded financial reforms.I am confident that today’s conference on the “G20 Initiatives” will be a very meaningful occasion for this.Ⅱ. Lessons Learned from the CrisisLadies and gentlemen!Before the crisis, financial markets were plagued by excessive risk-taking under the assumption that the ‘market is always right’.We lost sight of fundamental principles such as the trade-off between risk and return.And our appetite for leverage seemed to have no limits.Decades of relentless financial innovation alongside stable economic growth provided legitimacy for such an approach.But this crisis is demonstrating yet again that the financial industry must be developed under an appropriate regulatory framework.We are now all well aware that, unlike other industries, the financial sector contains systemic externalities.Simply put, the problems of a single financial firm can bring down the entire market.And this systemic risk has become even more potent due to the complex and interconnected global financial system we have today.Unfortunately, regulators were not sufficiently ready for this when the latest crisis broke out.Their focus on firm-specific micro prudential regulation failed to halt the spread of risk throughout the ma
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Nov 06, 2009

2009 Seoul International Finance Conference Congratulatory Speech

Ⅰ. GreetingsGood morning, ladies and gentlemen!Let me first thank Mayor Oh Se-hoon for inviting me to this prestigious event.I am pleased to meet the honorable ambassadors and so many prominent figures from the financial area.In particular, I would like to welcome Mr. Dominic Barton, the global managing director of McKinsey Company, and all of the distinguished guests from abroad.Seoul is the core city behind Korea’s economic growth.And it is now striving to emerge as a financial hub as well, with Yeouido as its center.I hope this conference will serve as a meaningful platform for discussing these ambitions.Ⅱ. The Direction of Financial Hub DevelopmentThe global community has put its all into overcoming the worst financial crisis since the Great Depression.These efforts have paid off, and the global economy seems back on track.The Korean economy has recovered especially fast, and this has even been termed the “Astonishing Rebound.”Now, at this juncture, we are pursuing policies designed to shape the post-crisis Korean financial industry.As part of this, the government is exploring new strategies for building a financial hub.In fact, existing hub countries like the UK and Singapore already have post-crisis strategies in place.They are responding to the new landscape and are fast enhancing the competitiveness of their financial industries.Korea is a relative newcomer to this race.In order to compete, we will have to concentrate on what we do well and succeed as a Korea-specific hub.With this in mind, the government intends to speed up efforts to boost the competitiveness of financial firms.We will further improve financial infrastructure and ensure that a high quality business environment is in place.In addition, we will devote considerable resources to cultivating a large pool of financial experts.And you can be assured that particular focus will be put on Seoul so that it can firmly establish itself as a global financial hub.This will, however, take close
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Oct 28, 2009

EUCCK Annual Seminar Luncheon Keynote Speech

Ⅰ. Introductory RemarksGood afternoon, ladies and gentlemen!Let me begin by expressing my appreciation to the European Union Chamber of Commerce in Korea (EUCCK) for inviting me to speak today.I am also pleased to meet the honorable ambassadors, and corporate and financial leaders from across the EU countries.And, as a government official myself, I give particular thanks to the EUCCK for doing so much to build close ties between Korea and the EU.The EU is a key trade and investment partner, and our economic cooperation is greatly valued.As you know, Korea and the EU initialed a draft deal on an FTA on October 15th.This marked yet another turning point in the furthering of economic ties between Korea and the EU.And with mutual trust and understanding, I believe there is no doubt that our win-win relationship will only develop more.Now, in line with today's topic, let me briefly give my thoughts on "Korea's Economy and FSC Policy Directions".I hope it will help lend some insights on how you view the Korean economy.Ⅱ. Economic Trends and OutlookSince the global financial crisis began last year, the Korean government has responded swiftly to the crisis with aggressive and far-reaching measures.These measures were, namely, liquidity injections, interest rate cuts, expansionary fiscal policy, and corporate restructuring.And I'm proud to say that financial market anxieties and economic contraction were successfully brought under control.As a result, and due to improving global economic conditions, Korea has led the way out of the crisis by recovering the fastest among all OECD nations.The real economy surged back in the first half this year, and this tide of recovery has stayed robust in the second half.Also welcome news is that equity and other major financial indices have bounced back to pre-crisis levels.Investor sentiment has naturally gone up as well.Not too long ago, foreign investors had major concerns about the Korean economy.They even raised the possibility of
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Oct 16, 2009

Legislative Notice of Amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act

OutlineIn the interest of invigorating the MAmarket and corporate restructuring, amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act have been devised and are announced herein. Opinions on this matter will be received for the next 20 days after this legislation notice.Key Contents of AmendmentsIntroduction of Special Purpose Acquisition Company (SPAC)A SPAC will be exempt from collective investment regulation when it is equipped with a separate investor protection and public offering deposit condition as stipulated in the Enforcement Decree. The system is also aimed to clarify any legal uncertainties concerning the establishment of a SPAC under the general form of incorporation and pave a realistic system of management and supervision over investor protection.An akin SPAC, not meeting the requirement stipulated above, will not be allowed to process public fund raising and IPO, and will be also exposed to the disposal and supervision against any illegal action through the restrictions of the collective investment regulation.Alleviated Regulation on Private Equity Funds (PEF)A PEF will be allowed to invest into a foreign firm (SPC) that invests over 50% of its assets to companies undergoing restructuring. But the foreign firm must convert its invested shares to target investment company shares in Korea within 6 month in order for effective supervision. This policy change will temporally be effective until the end of 2010.PEFs will also be allowed to invest directly to Social Overhead Capital (SOC). The maximum loan limit of 200% of its asset for a PEF that uses over 50% of its assets to invest in companies undergoing restructuring will be lifted to 300%.Facility FundsEnumerate property, plant and equipments to allow PEFs to purchase them even without the intention of taking over the management.Private FundsPrivate funds that invest in companies undergoing restructuring will be allowed to undertake debt up to 300% of equity
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Oct 14, 2009

Korea Gains Full Membership into the FATF

Korea has been admitted as a full member into the Financial Action Task Force (FATF) during the FATF Plenary held in Paris from October 14 to 16, 2009.Since the establishment of the Korea Financial Intelligence Unit and the introduction of Anti-Money Laundering (AML) system in 2001, the Korean government has been working to obtain full membership into the international organization.A wide range of efforts to join the FATF by Korea, which gained an observer status in August 2006, has come to fruition when this October FATF Plenary decided to admit the nation as a full member.The FATF, a leading international organization for anti-money laundering and counter-financing of terrorism (AML/CFT), was established in 1989 as an independent agency. It sets the global AML/CFT standards and works to ensure countries around the world comply with the standards.The FATF has established the global AML/CFT network consisting of 183 countries through 8 FATF-Style Regional Bodies. The network enables the organization to supervise compliance with the international standards by countries across the globe.Korea’s accession into the FATF will allow Korea to participate more actively in the process of setting or revising the global AML/CFT standards and in international AML/CFT cooperation. It is also expected to help improve integrity and confidence in the nation’s financial market, having positive impacts on overseas business operation by local financial institutions.Korean financial institutions will find it easier to have overseas business operations. They were originally required to submit additional documents for overseas businesses to the relevant authorities of the host countries simply because Korea was not a member of the FATF.Considering the recent G20 Summit called for efforts to enhance transparency in the financial markets and a stronger role by the FATF in addressing the risk of money laundering and terrorist financing, Korea will find itself well-positioned to increase
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Oct 01, 2009

Amendments to the Enforcement Decrees of the Banking Act and the Financial Holding Companies Act Have Passed Through the Vice-Ministerial Meeting

Following the Legislation Notice of Amendments to the Enforcement Decrees of the Banking Act and the Financial Holding Companies Act made on August 28 (original press release copied below), the amendments have been passed through the Vice-Ministerial Meeting and will be enacted on October 10, 2009 as planned after it is passed through the Cabinet Meeting on October 6.During the legislation notice period, several additional amendments have been made and reflected into the enforcement decrees.In the interest of avoiding conflicts of interest whereas a non-financial business operator (NFBO) acquires more than 4% of bank shares to become the largest shareholder or participate in management, the NFBO must also comply with additional requirements of social credibility condition i) and proactive condition ii).i) The firm must not have insolvent responsibilities in the last 5 yearsii) The firm must have a will to improve structural soundness of the financial institution and to contribute to the effectiveness of the financial markets.BackgroundThe Banking Act and the Financial Holding Companies Act were recently amended and will be enacted on October 10, 2009. Improvements were made to the restriction on shareholding of commercial banks and bank holding companies (hereinafter referred to as “banks”) by non-financial business operators (NFBO). The Korean government decided on enforcement decrees regarding FSC oversight of bank ownership by NFBOs and private equity funds (PEF). The FSC has proposed amendments to the enforcement decrees of the relevant acts in order to improve and supplement the existing system, such as the reporting of changes to bank ownership. Thus, this legislation notice will be in effect fromAugust 28 to September 7, 2009.Main PointsA. Matter related to the delegation and enactment of the amended Acts1. NFBO’s participation in bank managementUnder the amended Acts, when an NFBO wants to own more than 4% of bank shares and participate in management t
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Sep 17, 2009

Expanded Microcredit for Low-Income Households

Following the 31st Emergency Economic Meeting, the government revealed its “Miso Credit Foundation” (previously named the Microfinance Foundation) plan to provide extensive support in microcredit loans to low-income households, which will be enforced in December.The Foundation is expected to provide KRW 2 trillion over the next 10 years, in excess of 13 times the previous amount over the last 10 years, made possible through contributions from the private sector exercising their corporate social responsibility.The Miso Credit Foundation plans to open 20 to 30 branches at the first stage and expand up to 300 nationwide branches to carry out operation in order to maximize accessibility. The branches will be independently incorporated and operated, receiving operational guidelines, consulting and education from the main office.The branches will be staffed mostly by volunteers, including the branch managers, which will be non-paid positions given to ex-financiers and retirees. The regular employees will be paid less than KRW 1 million a month, and student volunteers will be paid a minimum for their daily allowances. The funding support structure for the branches will be flexible and determined according to the regular examination of their performances.In terms of funding the Foundation, the member corporations of the Federation of Korean Industries have committed to donating up to KRW 1 trillion over the next 10 years. The other KRW 1 trillion will be contributed by financial institutions, including the KRW 700 billion withdrawn from dormant accounts currently managed by the Microfinance Foundation, KRW 200 billion initially and KRW 50 billion annually over the next 10 years.The target beneficiaries will include petty business owners, traditional market business owners, viable startup franchise store owners, regular startup businesses, startup partnership businesses, and verified non-profit organizations.The interest rates will be set below the prime rate, currently
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Sep 17, 2009

FSB Plenary Meeting Report

The FSC Chairman Chin Dong-Soo attended the 2nd FSB Plenary Meeting in Paris on September 15. The meeting deliberated and finalized on most subjects that will be on the report, “Improving Financial Regulation” scheduled to be submitted to the Pittsburg G20 Summit on September 24-25.The FSC Chairman Chin has contributed in the discussions taken place at the Plenary, the Steering Committee and the Standing Committee through his presentations on the following three main topics: 1. An in-depth discussion took place at the Plenary Meeting especially on the issue of how to stabilize the foreign currency liquidity in emerging countries. This particular subject has been adopted as an official agenda of the meeting as we proposed based upon our own experience in the current crisis. We successfully brought to attention one of the most serious stability issues faced by emerging economies.2. Korea agreed on the basic concept and direction of the FSB’s regulatory reform of the capital framework and that the government and the banking industry are preparing for the strengthening of regulation.3. We also emphasized that not only home but host countries should play more significant roles in within the supervisory colleges, a system of collaborated supervision of systemically important financial institutions.Furthermore, the Standing Committee for Vulnerability Assessment, one of three Standing Committees within the FSB, has reported on four main areas of risk that include: the market impact of rapidly rising government debt, risks related to the timing of exit strategies from current policies, and the challenges in maintaining an appropriate balance and pace of regulatory reform. Authorities in emerging economies are assessing policy challenges related to currency mismatches on sectoral balance sheets and instability in portfolio flows.* Please refer to the attached PDF for details.
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Sep 11, 2009

Systemic Improvements in ELS Issuances & Operations

BackgroundThe FSC/FSS has put forth the following preemptive measures to make systemic improvements in the ELS issuances and operations to prevent the possibility of stock price manipulation at the maturity for the intention of evading profit payment.Main ChangesTo improve the final payout conditions at maturity, the valuation price at maturity will be changed from the closing price on the maturity date to either the average closing price of at least three days prior to maturity or the volume-weighted average price on the maturity date in the following ELS cases:When ELS has as its underlying equity stocks that are outside the top 20 in total stock market capitalization on the day of reporting, andWhen the amount of the issued ELS exceeding 10% of total daily average transactions during the preceding 1 month period prior to reporting.In the case where a securities company enters into back-to-back hedging contracts at the time of issuing ELS, the securities company will make known the counterparty either on the prospectus or to the investor. Otherwise, the issuer is to acquire and hold more than 3% of the issued security till maturity.Issuers of ELS which hedge on its own are required to set a ‘Hedge-related Internal Code’ while ELS issuers that use back-to-back hedging should ascertain whether or not it’s counterparty has the code and is available.The Korea Exchange is presently expected to release a guideline on ELS hedging for ELS managers.Expected Positive OutcomesELS-related market transparency and a noticeable diminishment in the risk of stock price manipulation on the day of maturity are positive outcomes expected from the latest changes. On the other hand, the changed measures will keep intact the positive functions of ELS, such as providing investment opportunities for high returns and stimulating the stock market via a hedging of underlying assets.* Please refer to the attached PDF for details.
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Sep 04, 2009

Progress on Corporate Restructuring

OverviewA preemptive corporate restructuring initiative has been carried out thus far in the interests of financial market stability and recovery from the economic crisis.Although partial signs of an economic recovery have recently been apparent, staying committed to a sustained restructuring effort remains paramount to strengthening Korea’s economic competitiveness going forward.Recognizing that an unwavering commitment to corporate restructuring is necessary, the government reviewed the progress during the President-led economic policy meeting earlier today and determined the future direction of corporate restructuring.Progress in Corporate RestructuringRestructuring of ConglomeratesA full-fledged corporate restructuring has been underway, which included contractual agreements with the nine conglomerates whose liquidity positions had earlier raised concerns. For the groups that signed contractual agreements, intensive self-rescue plans, such as sales of subsidiaries, asset dispositions, and capital expansions, are being actively pursued.Through the main creditor banks, the progress of the conglomerates’ self-rescue plans is being interminably reviewed, and by encouraging their prompt execution proactive restructuring is being given added impetus.Industry-Specific RestructuringTo lay to rest market uncertainties surrounding the possible distress in construction, shipbuilding, and shipping industries, 46 of the 277 companies that were rated C and D were selected for restructuring.Most of the creditors and the respective workout companies have entered into MOUs and are moving quickly through restructuring, such as debt rescheduling and self-rescue plans. As a result, six of the companies have since graduated from workout. Among the 14 D-rated companies, seven companies were called to repay their loans, three companies were put to court receivership, and four were brought subject to the process of liquidation and dissolution.Restructuring of Large Individual Compa
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Aug 28, 2009

Legislation Notice of Amendments to the Enforcement Decrees of the Banking Act and the Financial Holding Companies Act

BackgroundThe Banking Act and the Financial Holding Companies Act were recently amended and will be enacted on October 10, 2009. Improvements were made to the restriction on shareholding of commercial banks and bank holding companies (hereinafter referred to as “banks”) by non-financial business operators (NFBO).The Korean government decided on enforcement decrees regarding FSC oversight of bank ownership by NFBOs and private equity funds (PEF). The FSC has proposed amendments to the enforcement decrees of the relevant acts in order to improve and supplement the existing system, such as the reporting of changes to bank ownership. Thus, this legislation notice will be in effect fromAugust 28 to September 7, 2009.Main PointsA. Matter related to the delegation and enactment of the amended Acts1. NFBO’s participation in bank managementUnder the amended Acts, when an NFBO wants to own more than 4% of bank shares and participate in management through appointing directors to the board, it must do so with a pre-approval from the FSC. Moreover, a stringent post-approval supervision* will be in place to prevent any conflict of interest or illegal transaction.*eligibility assessment of the largest shareholder; limiting transactions such as the bank providing credit lines to the largest shareholder; and on-site FSS audits conducted when accused of illegal transactions.“Participation in management” is defined as follows:The number of senior managers elected by the NFBO exceeds the regulated number of, for instance, one or two persons.The NFBO is involved in major decision-making process and regular business operations, and can limit bank management’s decision-making authority through agreements and contracts.2. Approval of NFBO’s bank ownershipi) Under the amended act, an NFBO must gain approval from the FSC to acquire more than 4% of bank shares and become the largest shareholder or participate in management. The relevant enforcement decree dictates th
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Aug 19, 2009

FSC English Blog

The Financial Services Commission is officially launching its English blog http://fsckorea.wordpress.com today.Its purpose is to raise public awareness of the changes and progresses in multiple areas of Korea’s financial policies and to promote interactive policy communication with the public as well as with foreign investors and others who are interested in Korea’s financial policies.It aims to explain hard-to-understand financial policies in a simple and easy-to-understand format which the public without much financial knowledge can still manage to comprehend what the policies are about as well as the background reasons for them.The contents of the blog will be on key financial and economic issues, recent press releases from the FSC and other relevant government bodies, and press coverage on Korea’s economy and its financial markets. Currently updated contents are issues relating to the Financial Holdings Company Act, FX margin trading, the Fast Track Program, etc.Links to the blog can be found on the websites of multiple government agencies: Financial Supervisory Services Korea Deposit Insurance CorporationKorea Asset Management Corporation KoscomKibo Technology Fund Korea Credit Guarantee Fund Korea Development Bank Industrial Bank of Korea http://english.fss.or.kr https://www.kdic.or.kr/english http://kamco.or.kr/eng.html http://english.koscom.co.kr http://eng.kibo.or.kr http://eng.kodit.co.kr http://www.kdb.co.kr http://english.ibk.co.kr * Please refer to the attached PDF for details.
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Aug 17, 2009

Facility Investment Fund

In a follow-up measure to the July 2 announcement on ‘Plans to Promote Corporate Investment’ released through the Ministry of Strategy and Finance, specific plans to promote facility investment in the corporate sector have been devised. In accordance with the original plan to inject KRW 5 trillion into establishing a Facility Investment Fund through state-owned Korea Development Bank (KDB) and Industrial Bank of Korea (IBK), an initial investment of KRW 2 trillion will be made.Specific DetailsA total amount of KRW 2 trillion will be injected to the new Fund, whereas KDB will initially contribute KRW 0.6 trillion in addition to KRW 0.8 trillion through the Korea Policy Banking Corporation (KPBC) once it is established in October; the remaining KRW 0.6 trillion investment will be made by IBK.The method of investment will be either direct investment through various channels as issuing preferred shares, common shares, long-term corporate bonds, convertible bonds, as well as direct loans, or indirect investment through private funds and private equity funds (PEF). The funds will be available in multiple currencies (won, dollar, yen, euro, etc.) as required by specific projects, and the ratio of public funds being injected will be maintained around 50% of the total investment while the rest will be met by funds from the private sector.The private funds and PEFs eligible for injection of funds will have to meet certain criteria as total size of investment, track record, fees, and a minimum of 90% of funds required to be invested into facility investment. Further eligibility requirements will be set by KDB, IBK, and the Korea Financial Investment Association (KOFIA). KDB and IBK will jointly invest into these funds up to 40% of the total investment mostly through issuing common shares.The funds from KDB will concentrate on facility investments made to new-growth industries, infrastructure projects, long-term investments with higher than normal risk, and other large-scal
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Jul 30, 2009

Corporate Restructuring Progress & Financial Sector’s Non-Performing Loans

An economic policy meeting was convened by the President on July 30 discussing the current progress of corporate restructuring and plans to resolve non-performing loans in the financial sector. The following is a conclusion of those discussions in efforts to promote a smooth and preemptive restructuring for the corporate sector and improvements to facilitate its effectiveness.Corporate Restructuring ProgressA. Industry-Specific RestructuringCreditor bank-led credit assessments were completed on 277 construction and shipbuilding companies (1st round in January and 2nd round in March) and shipping companies (1st round in April and 2nd round in June).46 companies in total were selected for restructuring; 29 construction companies; 7 shipbuilding companies; and 10 shipping companies.Subsequently, progress has been made on the following fronts. 5 companies have completed their workout programs, 18 companies are presently under workout programs, and corporate restoration processes are underway on 23 remaining companies.B. Restructuring of Conglomerates45 conglomerates whose credit facilities account for more than 0.1% of total credit provided by the financial sector were put under separate assessment. 9 of those companies entered into contractual agreements with creditor banks on June.Based on the agreements, subject companies will make every effort to restore market confidence and take stepped-up measures of improving their financial conditions, which include recapitalization and sale of non-core subsidiaries and assets.C. Restructuring of Large Individual CorporationsCreditor banks have carried out credit assessments of large individual companies with credit facilities in excess of KRW 50 billion.In the second round of credit assessment, 433 companies were analyzed, and as a result, 33 companies were targeted for restructuring on June 10. Of the 33 companies, 22 companies were C-rated and 11 companies were D-rated. Workout programs are well underway on subject companies
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Jul 28, 2009

Privatization of Korea Development Bank

After four months of discussions, the Committee for the Establishment of Korea Public Banking Corporation (KPBC) formed by members from the FSC, MOSF, MKE, and professionals from the private sector has concluded on the following specific spin-off plan for KDB.A focus has been given to dividing the assets fairly and allocating them in a reasonable manner so that KDB can be privatized smoothly and KPBC can conduct public lending effectively.KDB is forecast to have assets of KRW 172.2 trillion, liabilities of KRW 155.0 trillion, shareholders’ equity of KRW 17.1 trillion and a BIS ratio of 13.1% as of end-August.Detailed Spin-off PlanA. Establishment of KDB Holding Company (KDBHC)KDBHC will be established with KRW 1.5 trillion of assets currently held by KDB; Daewoo Securities (KRW 973.4 billion), KDB Capital (KRW 433.5 billion), KDB Asset Mgmt (KRW 41.6 billion), and Infra Asset Mgmt (KRW 11.7 billion).Its liabilities and shareholders’ equity will be KRW 0.35 trillion and KRW 1.15 trillion respectively.B. Establishment of Korea Public Banking Corp (KPBC)KPBC will be established with KRW 28 trillion in assets, KRW 3 trillion in shareholders’ equity and KRW 25 trillion in liabilities.The shares of government-owned companies (worth KRW 15.1 trillion) will be transferred to KPBC as required by law. By law, the government is required to invest 100% or at least more than 50% in public entities such as Korea Electric Power Corporation, Seoul Metropolitan Rapid Transit Corporation and Korea Water Resources Corporation.The shares of companies undergoing restructuring, namely Hyundai Engineering Construction, Hynix, SK Networks, Korea Aerospace Industries and Daewoo International, will also be transferred to KPBC.Assets injected into the Bank Recapitalization Fund, cash assets of KRW 3 trillion and the KDB Capital building will be transferred to the KPBC.Industrial Finance Bonds (IFB), which account for most of KPBC’s liabilities of KRW 25 trillion, will be transferred o
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Jul 22, 2009

Amendments to the Financial Holding Companies Act

Relating to Separation between Industrial and Financial CapitalThe National Assembly has approved the amendments to the Financial Holding Companies Act to be enacted on October 10, 2009, resulting in the relaxation of a "non-financial business operator" (NFBO) from taking ownership of a bank holding company.Currently, an NFBO is not allowed to own more than 4% of the voting shares of a bank holding company. When the amendments become effective, they will be allowed to own up to 9% of the shares. This is possible under the precondition that an advance-screening procedure and a stringent post-supervision be in place to prevent industrial capital from manipulating the financial system.When an NFBO wants to own more than 4% of the voting shares of a bank holding company, become the largest shareholder or participate in management, it must do so with a preapproval of the FSC. And a more stringent post-supervision will be in place to restrict any illegal transactions between the bank and the largest shareholder.Also, when an NFBO invests into a private equity fund (PEF) through a limited partnership and the regulation in which the PEF not be treated as an NFBO has been amended. And the current limit on the amount an NFBO can invest into such PEF and not be regarded as an NFBO (10%) will be raised to 18%. Moreover, the maximum amount of which affiliated companies can jointly invest into such PEF and not be regarded as an NFBO (30%) will also be raised to 36%.In the past, the National Pension Service (NPS) was generally perceived as being ineligible to become a major shareholder of a bank holding company because it was considered an NFBO. However, if certain criterions are met, it will not be deemed as an NFBO.Relating to Regulation on Non-bank Financial Holding CompaniesFour months after the promulgation of the amendments to the Financial Holding Companies Act, a non-bank holding financial company will be allowed to take controlling ownership of non-financial companies. Fi
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Jul 17, 2009

SME Loans & Credit Guarantees in the First Half of 2009

Bank LoansLoans provided by the 18 domestic banks to small and medium-sized enterprises (SMEs) in the first half of 2009 increased by KRW 16.2 trillion from KRW 422.4 trillion to KRW438.6 trillion as of end-June.In June alone, the preliminary net increase in SME loans was KRW1.1 trillion won, but if you take into account loan dispositions and write-offs, it rose KRW3.1 trillion.Fast Track ProgramSince the Fast Track program got started on October 13, 2008, a total of 9,803 companies have been extended KRW17.7 trillion in support, KRW4.7 trillion of which was provided to those having incurred losses in KIKO and other currency options.A total of KRW2.4 trillion was extended to 1,929 companies through the Fast Track program in June, including 716 new applications.Due to improving internal liquidity status, the number of newly registered companies for support has been continually on the decrease since March, 2009.Support through the Center of the SME Financial OmbudsmanSince the Center of the SME Financial Ombudsman opened on September 11, 2008 up until end-June 2009, a total of 2,821 cases were heard of which 49.2% or 1,387 cases were merited with KRW1,161.4 billion in support from the banks.In particular, the six SME Financial Support Offices located in industrial parks counseled 658 cases and accepted 35.3% or 232 cases for support between February 23 and June 30.Guarantees Bank Loan Maturity ExtensionsSince the start of expansion of guarantees on February 16, there has been KRW24.7 trillion in new guarantees to ease the burden on SME liquidity status. Since the peak in March (KRW5.9 trillion), it has been on the decrease and stabilizing.Despite the slowing of SME lending increase of KRW16.2 trillion from KRW35.1 trillion last year, maturity extensions rose to KRW16.4 trillion from KRW15.1 trillion a year earlier. The rollover ratio consistently showed over 90%.In the first half of 2009, KRW16.7 trillion (KRW3.8 trillion in June) was extended in support of core busin
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