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Nov 25, 2008
- The Global Financial Crisis & Korea’s Policy Response
- IGE/IMF International Conference Luncheon RemarksThe Global Financial Crisis Korea’s Policy ResponseDr. Jun Kwang-Woo Chairman Financial Services CommissionGREETINGSDistinguished guests, and ladies and gentlemen,I am delighted to be with you this afternoon, and I thank IGE Chairman Kim Pyung-Joo and President Lee Young-Tak and Dr. Mahmood Pradhan from the IMF for organizing today’s conference and inviting me to speak. I also thank speakers and distinguished participants who are with us today.In light of the deepening distress in the global financial markets, today’s conference, entitled “Lessons from the Recent Global Financial Crisis: Its Implications for the World and Korea,” is both timely and of great interest to every one of us.So I am glad to join you and share with you my perspectives on how the financial crisis emerged, what lessons we can draw from it, and where we go from here. GLOBAL FINANCIAL CRISIS KOREAN ECONOMYThe global financial crisis started with collapsing asset prices followed by a debilitating credit crunch. Expansive monetary policy by the U.S. Federal Reserve since 2001 and a surge in foreign capital inflow since 2004 kept interest rates at record low levels.Financial deregulation also swept across the major developed countries beginning in the 1980s. During this time, capital market liberalization also picked up the pace among the emerging countries.This process ultimately led to sharp increases in financial institutions’ leveraged activities and asset inflation. In particular, as financial institutions increasingly employed aggressive asset securitization and complex derivatives to sustain high profit growth, a host of new risks began to weigh on the financial system. For their part, regulators did not fully grasp the situation and preempt the risks. And the global nature of the financial system meant that the systemic risks would be felt and shared by markets around the world.Domestic financial marketsWe are now getting clear i
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Nov 24, 2008
- Statement by the FSC on the BOK's Liquidity Support
- The FSC highly commends the Bank of Korea’s recent preemptive decision to provide liquidity support to companies investing in the Bond Market Stabilization Fund (BMSF). It is intended not only to stabilize the financial market in general, but also to help implement the BMSF in particular, through close cooperation with the government. It is thought that the decision will ease financial companies’ efforts in raising funds for their investments along with any worries of establishing liquidity in the bond market. Thus, the government plans to speedup the process of building the BMSF. Through careful discussions between financial companies, a decision will be made on the participating institutions, the total investment amount, and the specific amount shared by each institution. The BMSF will be set in motion very shortly. The participating institutions will mainly be composed of banks, insurance companies, and securities companies.As already announced, the primary purpose of the Fund is to provide liquidity to quality corporations that are experiencing temporary liquidity shortages due to the current market credit crunch. P-CBOs that have been credit-enhanced by KODIT and KIBO, high-rate ABCPs based on Project Financing, credit financing bonds, and corporate bonds will be the first to be considered on the purchasing list. The issuers will be requested to make their own restructuring efforts when necessary. The details of fund composite, the managing institution, and the priority of trade will be shortly decided after discussions between the participating parties. The Financial Services Commission (FSC) and the Financial Supervisory Services (FSS) will oversee operations from the beginning to ensure investor protection and market stability. Mr. Jun Kwang-Woo, the FSC chairman, has requested that the vice-chairman start meeting with related financial associations and the FSS as of Nov. 25th to discuss detailed plans to propel the project as soon as possible.*Please re
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Nov 19, 2008
- The Korea Investors’ Forum in London and New York Held by The Financial Services Commission.
- The Korea Investors’ Forum was held by the Financial Services Commission (FSC) on the 17th of November at the Landmark Hotel in London, and then on the 18th at the New York Palace Hotel in New York. They have been done in collaboration with the private sector including the Korea Exchange (Jung-Hwan Lee, CEO) and Samsung Securities (Jun-Hyun Park, President). The purpose of these events was to promote the Korean economy and the financial market to the foreign investors in advanced economies.Chairman of FSC, Kwang-Woo Jun attended the presentation held in New York on the 18th about investing in the Korean financial market to make a keynote speech on the liquidity of foreign currency, the soundness of banks, as well as on concerns over potential risks of SMEs and household (residential) debt. An analysis of objective statistics and indicators was used to minimize both the domestic and overseas concerns over the Korean economy.The guarantee of external debts, the supply of additional liquidity by the government and the BOK, and the 33 trillion won fiscal expansionary package was explained as a few of the preemptive measures put in place by the government; emphasizing the healthy macroeconomics of the country and the resilient economic fundamentals of its financial market.Furthermore, Korea’s entrance into the FTSE Developed Index as well as the entrance into the Global Dow Jones Developed Index was explained in proving the advancement made by the Korean financial market through recognition of its sovereign credibility. A request to promote such achievements by investing more into the Korean market was made. 1. Korea Investors’ ForumThe Korea Investors’ Forum held in London and New York on the 17th and 18th of November were done in an IR setting composed of an official luncheon followed by one-on-one meetings between individual corporations and institutional investors.This joint IR was held in collaboration with the FSC and the Korea Exchange, supported by Samsun
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Nov 14, 2008
- Reporters' Discussion Points with Chairman of the Financial Services Commission
- 1. Recent Market Conditions International Markets- The global markets seem to be stabilizing after the announcement of the U.S. government’s bailout plan and the currency swap agreements signed between the key nations around the world.- Some uncertain elements still exist in the market which are expected to remain until the first quarter of 2009.- With regards to hedge funds managed by major institutional investors, there are likely to be adjustments made to the portfolios early next year which are likely to lead to swift changes in sovereign credit ratings around the globe.Domestic Markets- In response to the crisis, the Korean government utilizing all its resources and departments including the Bank of Korea (BOK), and the regulatory bodies has made devoted efforts to stabilize the domestic financial market.- To provide foreign currency liquidity to financial institutions, - We have carried out a list of actions; guaranteeing external debt payments by local banks; providing foreign currency liquidity using the Swap market; and supporting export financing through the EXIM Bank.- With respect to providing liquidity of domestic currency,- The BOK has acted aggressively by lowering the interest rate 3 times since October 9th, totaling 125bp, and expanding the number of RP receivers.- These efforts have cleared an opening in the flow of funds and has dissolved the liquidity freeze.- However, we are in a phase of a frictional credit freeze because of the lack of liquidity still in local funds.- As a result of the economic slowdown, worries of insolvency in weak segments of the economy are increasing market uncertainty.- Thus, the propensity of investors to be risk adverse is freezing the liquidity of corporate bonds and ABCP.⇒ To summarize the current situation and to put it figuratively, a blood transfusion is given to an anemic patient, but due to the hardening of the arteries, the blood is being prevented from spreading throughout the body.2. Direction of Counter
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Nov 11, 2008
- Meeting with Heads of Major Banks
- On Wednesday November 5, 2008, a closed breakfast meeting was held between Kwang-Woo Jun (FSC Chairman), Jong-Chang Kim (FSS Governor) and the presidents of the 7 major Korean banks* . The main topic of discussion was centered on the financial support to be provided to SMEs. * Kookmin, Woori, Shinhan, Hana, Nonghyup, KDB, and IBK.Kwang-Woo Jun, Chairman of the FSC● The government has enforced a number of drastic measures* in order to overcome the global financial crisis including support to financial institutions and the real economy.●However, complaints are continuously being voiced by SMEs on the financial difficulties which are still present in their operations, despite efforts already being made by the government. - It is now time for banks to take positive steps to respond to government efforts.●From this moment on, presidents of banks are requested to take particular interest in the operations of lending funds to SMEs. This effort should be felt by the SMEs.- In particular, it is hoped that the Fast Track Program launched for SMEs are effectively implemented as soon as possible.●Banks need to provide support to sound SMEs temporary experiencing financial difficulty and to play an active role in starting a chain reaction of improving the financial soundness of banks and of accelerating the recovery of the real economy.- The most effective method of stabilizing the financial system is to minimize the number of SMEs going bankrupt and to prevent the real economy from falling into a recession.●Although there are concerns over whether the financial soundness of banks maybe compromised if support to SMEs and vulnerable sectors are expanded,- The government has taken preemptive measures in expanding the capacities of state-owned banks and credit guaranteeing institutions such as the Korea Credit Guarantee Fund and the KIBO Technology Fund to strengthen the risk absorbing capability of the banking sector; - The government intends to continually encourage the
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Nov 05, 2008
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Nov 03, 2008
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Oct 30, 2008
- A Decision to Reinforce the Elimination of Malignant Rumors in the Stock Market
- In early September, the Financial Services Commission partnered with other stock market related government agencies to form a Joint Countermeasure Task Force to tackle the recent widespread circulation of malignant rumors regarding the Korean stock market. An unspecified number of rumors have caused an increase in the Korea Exchange to request public inquiries of corporations to verify the nature of the rumors. Moreover, the rumors have been thought not only to disturb the fair trading environment but also to have been the sources for the plunge in certain stocks. There is also suspicion that reports containing negative outlooks from foreign analysts are connected to the initiation of short-selling and market correction. Many of these rumors have been found to be without grounds, thus causing greater concern and sparking the urgency for the development of countermeasures to seek and prevent the sources of the rumors.Implementation Plan1. Joint Countermeasure Task Force● The Expansion of the Countermeasure TeamThe Countermeasure Team which was previously run solely by the FinancialSupervisory Service (FSS) has been expanded and renamed as the JointCountermeasure Task Force to include the cooperation of the Korea SecuritiesDealers Association (KSDA), the Korea Listed Companies Association (KLCA),and the KOSDAQ Listed Companies Association (KOSDAQCA) as of September,2008.According to interviews with market analysts and personnel from the exchange, thetask force is proving to be effective in the prevention of malignant rumors.●The Operation of Call CentersSeveral call centers have been put in place to receive reports on malignant rumors,with rewards provided for genuine leads on rumors that are potentially harmful andwithout grounds.The FSS is responsible for investigating the sources of rumors and monitoringpress releases, analyst reports, various investment websites, and the actualexchange floor.Corporations have been requested to actively make voluntary public re
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Oct 29, 2008
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Oct 27, 2008
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Oct 27, 2008
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Oct 22, 2008
- Interview with the Chairman of the FSC on Bloomberg TV, 21 October, 2008
- Korea Can Give Economy More Help If Needed, Jun SaysBy Bomi Lim and Bernard LoOct. 22 (Bloomberg)South Korea is ready to take more measures torestore confidence in its financial system if needed, including a packageto shore up the economy, the nation's top financial regulator said."The follow-up measures any country can take now are fiscal stimuluspackages, economic boosting measures,'' Jun Kwang Woo, chairmanof the Financial Services Commission, said yesterday in an interview inSeoul. "Korea is in the most comfortable position to do just that.'' The benchmark Kospi stock index slumped to the lowest in more thanthree years and the won fell on concern government measures --including 8 trillion won ($6 billion) to support the construction industry --won't be enough to avert an economic slowdown. Growth probably slowed to a three-year low 3.6 percent inthe third quarter, according to the median estimate of 12 economists surveyed by Bloomberg News."We certainly have the right kind of support mechanism to be used whenever it is needed,'' Jun, 59, said inthe interview. "Given the enormity of this current round of credit crunch around the world, we cannot livewithout having an adequate contingency plan.''South Korea, saddled with a record current account deficit, pledged $130 billion, equivalent to 14 percent ofgross domestic product, to support banks as the global credit crunch saps access to foreign funds. Thegovernment Oct. 19 agreed to give lenders access to $30 billion in U.S. dollars and guarantee $100 billion offoreign-currency debt.Kospi, WonThe Kospi tumbled 5.1 percent to 1,134.86 at the close in Seoul, led by Posco, after Asia's biggest maker ofstainless steel, said it will slash production as demand slows. The index has slumped 40 percent this year.The won, Asia's worst performing currency this year, fell 3 percent to 1,364.45 to the dollar."We may need a stronger package to meaningfully reduce embedded risks in Korea's financial system,''Morgan Stanley analyst
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Oct 20, 2008
- FSC's Published Response to the Financiual Times Articles “Singking feeling” and "Runs rekindle memories of Asian crisis a deccade ago"(October 14 and 15)
- The Financial Services Commission and the Financial Supervisory Service issue the following corrections, clarifications and explanations for factual errors and questionable assertions made in the October 14 Financial Times news article “Sinking feeling”Purpose of Finance Minister Kang Man-Soo’s meetings with U.S. business executives“Kang Man-Soo, finance minister, is taking his plea for dollars to Wall Street, wherehe is due to meet with executives of banks such as Citigroup and Morgan Stanley.”Minister Kang Man-Soo met with Mr. Stephen Roach, chief economist at Morgan Stanley,and Mr. Robert Rubin, the former Treasury Secretary, on Tuesday, October 14, fordiscussions on the global financial crisis and their market views and assessment. MinisterKang did not meet with Wall Street executives to plea for dollars as the article falselyasserted. He did not take his plea to Wall Street as the news article speculated.POSCO overseas bond offering“Posco, the steel maker, said last week it would sell $1bn of bonds overseas as part ofefforts to stabilise the won.”In a press release dated October 10, POSCO announced that it is planning a US$1 billionoversea bond offering some time in the fourth quarter this year. The press release explicitlystated that the proceeds from the bond offering would be used for future investment andoperating funds. It did not say that the proceeds would be used to stabilize the won as thenews article erroneously reported.Remarks attributed to Finance Minister Kang Man-Soo“Mr. Kang recently told a parliamentary session that ‘apart from exports,everything—including investment, consumption, employment and the currentaccount balance—is showing a trend similar to that seen during the [Asian crisis].”The quote attributed to Minister Kang appears to refer to one of the many remarks he madeat a National Assembly hearing on July 22, 2008, in response to questions on the outlookfor the economy from National Assembly members. What he obse
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Oct 20, 2008
- Introduction of competitive auction swap facility
- Introduction of competitive auction swap facility- The Bank of Korea (BOK) will introduce a competitive auction swap facility, starting from October 20, 2008. o The existing swap market participation facility will continue to operate, but the amounts involved will be gradually reduced.- The purpose of this new facility is to enhance the predictability and effectiveness of foreign currency supply and to promote stability in the foreign currency funding market. o Market stability will be pursued by supplying foreign currency funds in more effective ways to domestic foreign exchange banks, which have had difficulties raising funds from abroad amid the worsening global credit crunch.- Unlike the existing swap market participation facility, the new competitive auction swap facility will be open to all foreign exchange banks in Korea. Under this program, the BOK will conduct FX sell buy swaps or currency swaps (pay) with banks at trade terms (amounts and interest rates) decided through competitive auction. o Under the swap market participation facility, introduced in September 2007, the BOK trades with agent banks first, and then the agents trade with other FX banks. o The new facility is different, in that every FX bank engages directly in swap trades with the BOK.- The BOK's expectation is that this new facility will help to ease the recent foreign currency funding market strains. * Please refer to the attached PDF below.
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Oct 19, 2008
- Proposed measures to overcome uncertainties in the international financial markets
- 1. Current SituationLehman’s bankruptcy filing (September 14th) sparked a chain reaction that sent globalcredit markets into disarray. Concerns have been spread around the world that loomingcredit crunch and slowdown of the real economy may be protracted. Finding a solutionout of the global credit crunch and economic uncertainties of the global economy willtake quite some time.Consequently, the governments of major economies have made efforts to coordinatetheir policy responses to the crisis and have introduced unprecedented and strongmarket stabilization measures.Despite the recent credit crisis, Korea’s real economy and its financial sector are sound.Exports show a steady growth and conditions of the banking sector remain healthy. Byvarious international standards, Korea’s foreign exchange reserves are sufficient.2. Proposed policy responsesAs other major economies start providing guarantees to inter-bank loans, the Koreangovernment will take similar measures to avoid placing domestic banks at acomparative disadvantage in terms of overseas funding and to allay fears in thefinancial market. The government will pursue market stabilization policies in apreemptive, decisive and sufficient manner to minimize the total cost of implementingthe proposed measures.① The Korean government will provide guarantees to Korean banks' external debt after securing approval of the National Assembly. When Korean banks or its overseasbranches take upon external debt from October 20th this year to June 30th, 2009, thegovernment will offer guarantees to the debt for 3 years. Initially, Korea DevelopmentBank or Korea Eximbank will provide guarantees starting from October 20th until thegovernment wins approval of the National Assembly. After securing the approval, thegovernment will take over the task of providing guarantees.* The total value of guarantees will be capped at USD 100 billion. Domestic banks’external debt reaching maturity until the end of June, 2009 is estimated t
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Oct 17, 2008
- Corrections, Clarifications and Explanations for October 14 Financial Times News Article “Sinking feeling”
- The Financial Services Commission and the Financial Supervisory Service issue the following corrections, clarifications and explanations for factual errors and questionable assertions made in the October 14 Financial Times news article “Sinking feeling.”*****Purpose of Finance Minister Kang Man-Soo’s meetings with U.S. business executives“Kang Man-Soo, finance minister, is taking his plea for dollars to Wall Street, where he is due to meet with executives of banks such as Citigroup and Morgan Stanley.”Minister Kang Man-Soo met with Mr. Stephen Roach, chief economist at Morgan Stanley, and Mr. Robert Rubin, the former Treasury Secretary, on Tuesday, October 14, for discussions on the global financial crisis and their market views and assessment. Minister Kang did not meet with Wall Street executives to plea for dollars as the article falsely asserted. He did not take his plea to Wall Street as the news article speculated.POSCO overseas bond offering“Posco, the steel maker, said last week it would sell $1bn of bonds overseas as part of efforts to stabilise the won.”In a press release dated October 10, POSCO announced that it is planning a US$1 billion oversea bond offering some time in the fourth quarter this year. The press release explicitly stated that the proceeds from the bond offering would be used for future investment and operating funds. It did not say that the proceeds would be used to stabilize the won as the news article erroneously reported.Remarks attributed to Finance Minister Kang Man-Soo“Mr. Kang recently told a parliamentary session that ‘apart from exports, everything—including investment, consumption, employment and the current account balance—is showing a trend similar to that seen during the [Asian crisis].”The quote attributed to Minister Kang appears to refer to one of the many remarks he made at a National Assembly hearing on July 22, 2008, in response to questions on the outlook for the economy from National Assembly m
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Oct 14, 2008
- Briefing for Analysts
- 1. Total Foreign DebtRecent debts have largely been incurred as a result of bridge-financing (based on anticipated future returns) such as currency forwards. This type of financing has different characteristics to that of liabilities incurred to finance current account deficits which were prevalent prior to the Asian Financial Crisis.As of the end of June 2008, it is estimated that $151.8 billion out of a total of $419.8 billion of foreign debt by BOK will be not be subject to any repayment burdens, and thus reduce the actual foreign debt amount to $268 billion. The exclusion of debts which are not subject to any repayment burdens will result in an actual net foreign asset amounting to $154.5 billion.The current external debt ratio as of the end of June 2008 stands at 86.1%. However, the figure falls to 54.4% when foreign bank branches are excluded, significantly reducing external debt risks.2. External Debt by Sector A. Government Sector The bulk of the government sector debt ($51.8 billion out of $63.1 billion) consists of KRW-denominated government bonds and currency stabilization bonds purchased by foreigners, for which the Korean government and the BOK has ample repayment capacity.The remainder consists of $3.3 billion in foreign currency-denominated FX equilibrium bonds, $3.4 billion in public loans, etc. (i.e. long-term external debts that pose little risk). B. Banking SectorForeign debts without any repayment burdens incurred from shipbuilders' currency hedging, etc. account for 44.6%, or approx. $93.8 billion, of the external banking sector debt. Foreign debts incurred by domestic branches of foreign banks from their headquarters abroad are very low-risk compared with those of Korean banks.* Foreign bank branches hold 43.1% of total external banking sector debts, and 57.7% of short-term debts.We are applying stringent criteria for FX liquidity to domestic banks than observed in other countries; hence, our current FX liquidity level remains stable.* Develope
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Oct 13, 2008
- Domestic Banks’ Loan to Deposit Ratio
- The Financial Services Commission and the Financial Supervisory Service hereby issue a correction to the inference several newspaper articles have recently made from a cursory look at Korean banks’ loan/deposit ratios that Korean banks are funding local lending with foreign borrowing.The won-denominated loan/deposit ratio (including CDs) of domestic banks was 103.2% at end-September, 2008. Because of their deposit-like characteristics, CDs are included in determining the loan/deposit ratio, as is the convention in many countries. They are also classified as liabilities and thus subject to strict reserve requirements under the Bank of Korea Act. It should also be noted that over-the-counter bank teller sale of CDs account for approximately 80% of the total and that the average maturity of the CDs sold over-the- counter is five months. Furthermore, the loan/deposit ratio drops to 85.0% if bank-issued bonds are included in the ratio computation, meaning funding from local sources easily exceed local lending.Thus, the inference drawn from Korean banks’ loan/deposit ratios, ex-CDs and bank-issued bonds, that domestic banks are funding home lending with foreign borrowing is erroneous because local deposits and CDs have been, and continue to be, the primary sources of local funding for Korean banks.* Please refer to the attached PDF below.
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Oct 10, 2008
- Key Issues on Korean Economy
- This document is prepared with the purpose to explain the following key issues on Korean economy.- External Debt- Foreign exchange reserve- Export- Current Account Balance- Korean Banks- FX Liquidity- Policy Responses 1. External Debt □ (Size) The ratio of external debt to GDP stands at 39% as of late 2007, which is lower than that of major developed economies1) and tolerable given the size of our economy.□ (Nature) Recent growth of external debt in Korea has risen as a counterpart to hedging activities undertaken by shipbuilders and overseas investors.ㅇ This is in stark contrast to massive foreign currency short-term borrowings induced for excessive investment by Korean Chaebols that led to the 1997 financial crisis.ㅇ As of June 2008, $152 billion out of $420 billion external debt are free of repayment burden, making the size of foreign debt with repayment burden reduced to $268 billion.ㅇ In addition, 22% of the total external debt (45% of short-term external debt) belongs to local branches of foreign banks, which makes it unfitting to be regarded as net external debt.ㅇ The IMF expressed that today's foreign debt increase in Korea not as risky as in the past. (08. 6.24, IMF Annual Consultation)1) the ratio of external debt to GDP as end of 2006 : UK(394%), Germany(144%), US(85%), Japan(35%) 2. Foreign exchange reserve□ (Size) Korea holds the 6th largest foreign exchange reserve in the world, which is deemed adequate.ㅇ The size is well beyond the IMF guideline, which is a global reference for the adequate size of FX reserve.2)ㅇ The IMF(Sep.4) and Fitch(July.16), a global credit rating agency, affirmed that Korea's reserve was sufficient.□ (Composition) Korea's reserve is composed of assets with low risk such as deposits, sovereign bonds, federal agency securities and supernational bonds.ㅇ As of September 2008, the total of $240 billion reserve can be cashed in immediately.2) IMF guideline for adequate FX reserve is a total of 3-month current pa
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Oct 09, 2008
