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May 10, 2010
- Contingency Plans for Southern Europe's Financial Crisis
- Despite the EU-IMF rescue package* for Greece, financial markets faltered amid fears that southern European counties’ debt crisis could spread. Stock markets in the U.S. and Europe fell, and the KOSPI Index on May 6 fell 2% as well. The values of the US dollar and the yen against the Korean won surged. The US dollar against the Korean won on May 6 rose by KRW 25.8, and the yield of 3-year government bonds went up by 0.08%p.However, southern Europe’s debt crisis is expected to have only a limited impact on the Korean financial market because the domestic financial institutions’ exposure to the region is insignificant. As of end-2009, Korean financial companies’ exposure to southern European countries – Greece, Spain, Italy, and Portugal – is USD 640 million, just 1.2% of the USD 52.8 billion total external exposure. The total borrowings of Korean banks from those countries are only USD 390 million.As market concerns over southern Europe’s debt crisis and its contagion to Europe as a whole might persist for a while, the FSC plans to strengthen its monitoring on financial markets and European capital flows. To this end, the FSC and the FSS will closely monitor capital inflows and outflows and thoroughly examine domestic banks’ foreign liquidity soundness and external borrowing conditions.The FSC will utilize hot-lines and other communications channels with domestic banks to promptly detect and preemptively address market problems. We will also examine and complement individual banks’ contingency plans to raise their capital.Furthermore, in order to ease concerns in financial markets, the FSC will closely work together with the Ministry of Strategy and Finance (MOSF) and the Bank of Korea (BOK).At a global level, the Financial Stability Board (FSB) is expected to closely monitor the future developments of the Greek rescue package and promote global coordination through sharing information on each country’s fiscal and economic conditions.*Please refer
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Apr 20, 2010
- Impacts of the Goldman Sachs Case on Financial Markets
- 1. Impacts on domestic and overseas financial marketsIn the wake of the civil action by the U.S. Securities and Exchange Commission (SEC) against Goldman Sachs on April 16, stock markets in the U.S. and Europe fell, and prices of the U.S. Treasury bonds and dollars rose.Domestic markets were also affected by the Goldman Sachs case to a limited extent. The KOSPI dropped by 30bps.Foreign investors sold in the market, and the U.S dollar against the Korean won rose.As of end-2009, domestic financial institutions hold the outstanding securities of USD 350 million issued by Goldman Sachs. That accounts for only 1.8% of foreign securities held by domestic financial institutions (USD 19.04 billion) and does not include a synthetic CDO related to the case.2. ImplicationsThe Goldman Sachs case is expected to bring only a limited impact on Korean financial markets considering the fact that Korean financial institutions hold no CDO at issue and only a small amount of other securities issued by Goldman Sachs. Also, under Korea’s Asset-Backed Securitization Act, it is virtually impossible for special purpose companies (SPCs) to issue synthetic CDOs, similar to the controversial product in question; therefore, it is unlikely that domestic financial institutions wouldexpose investors to similar risks.3. Policy responsesThe FSC will closely monitor any possibility that similar lawsuits would be filed worldwide and domestic financial companies might be involved. At the same time, the FSC will continue to improve investor protection systems such as prior reviews* for OTC derivatives. Currently, amendments to the FSCMA enforcement decree are underway to enforce the prior review system for OTC derivatives in June 2010, and the Korea Financial Investment Association(KOFIA) is formulating rules of prior reviews.*Prior reviews of OTC derivatives, introduced by the amended FSCMA in March 2010, are conducted by a review committee of the KOFIA. Products subject to a prior review include OTC
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Apr 15, 2010
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Apr 07, 2010
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Mar 31, 2010
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Mar 26, 2010
- Regulation on Banks' Loan-to-Deposit Ratios
- In the 2010 Financial Policy Agenda announced in December 2009, the FSC unveiled its plans to adopt banks’ loan-to-deposit (LTD) ratio as one of its bank liquidity guidance ratios, which aims to encourage sound management of banks and alleviating factors driving the asset competition among banks. As a step to follow up with the announcement, the Regulation on Supervision of Banking Business is slated to be amended to employ banks’ liquidity or LTD ratio to measure bank management soundness after a notice and adjustment period between March 26 and April 15.BackgroundFor the past few years, expansion in mortgages and SME loans triggered off an asset competition among banks. As a result, signs of instability in banks’ liquidity became apparent during the 2008 financial crisis as bank debentures and other market-based capital served as funding sources while resources that are required to support stepped up lending were not backstopped with deposits.Although domestic banks’ LTD ratio was around 100% at the end of 2004, the ratio had risen sharply between 2005 and 2007 reaching 127.1% at the end of 2007. However, following the persistent guidance from the regulator to reduce the ratio since the second half of 2008, banks’ LTD ratio had fallen to 110.4% as of end-January 2010.Proposed ChangesThe planned changes in the regulation will apply to commercial banks in principle having won-denominated loans in excess of KRW2.0 trillion. This will include foreign bank branches, of which only HSBC will apply with KRW3.3 trillion in won-denominated loans as of December 2009, and the National Agricultural Cooperative Federation (NACF), the only one among the special purpose banks given the policy-driven nature of their loans.The ratio is calculated through the following method, excluding CDs: Loan-to-deposit ratio = won-denominated loans won/denominated deposits* * Demand deposits, savings deposits, time deposits (figures from bank balance sheets)The target for banks’ LTD
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Feb 23, 2010
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Feb 10, 2010
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Feb 09, 2010
- Plans to Build Trading Infrastructures for OTC Derivatives
- As the G20 leaders at the Pittsburg summit on September 9, 2009 reached a comprehensive and concrete agreement to build trading infrastructures for over-the-counter (OTC) derivatives. In line with such effort, following plans have been devised for Korea’s OTC derivatives market. Current OTC derivatives market infrastructures in KoreaAs trading volume of OTC derivatives in Korea still remains insignificant, there are few market infrastructures such as a central counterparty clearing house (CCP) or an electronic trading platform in place. Currently, the Financial Supervisory Service (FSS) is running a derivatives monitoring system which serves as a trading info repository and where all derivatives contracts must be reported to.Future plansThe FSC’s Capital Markets Division will form a task force (TF) with academic and related institutions to monitor global discussions and exemplary cases in advanced countries so that specific plans to introduce trading infrastructures for OTC derivatives and to revise related laws and regulations by 2010.1. Creating trading infrastructures for OTC derivativesThe TF will conduct a thorough research on the possible effect of trading infrastructures for the OTC derivatives market to find out what method will be best suited for Korea.2. Providing legal groundsNecessary revisions will be made to the Financial Investment Services and Capital Markets Act (FSCMA) to provide legal grounds for a CCP which specify a definition of “clearing”, conditions for establishing a CCP, and measures to secure public interest.3. Standardizing OTC derivativesFor CCP clearing purposes, OTC derivatives such as IRS, CRS and CDS will have to be standardized.4. Other OTC derivatives infrastructuresFurther efforts will be made to enhance existing systems or to create a new trading info repository, a trading platform and other OTC market infrastructures, considering global trends.* Please refer to the attached PDF for details.
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Feb 01, 2010
- Domestic Banks’ Preliminary SBL Ratios
- Since August 2009, Korea’s financial authorities have been encouraging domestic banks to lower their average SBL (substandard or below loans) target ratio to 1% by end-December 2009.As of end-December 2009, domestic banks’ SBL ratios averaged 0.99% to meet their target ratios, excluding the KRW3.0 trillion in debt obligations that arose in December from the unexpected workout of the Kumho Group affiliates and a number of shipbuilders*. *Kumho Industries, Kumho Tires, SLS Shipbuilding, 21st Century Shipbuilding, etc.When setting the target ratio, corporate restructuring-related SBLs were allowed to betaken out of calculation because they were expected to take longer to resolve through sales, dispositions, and other means.If these corporate restructuring-related SBLs are included, the average SBL ratio is 1.22%.The SBLs resolved in H2 2009 during the targeting period were KRW17.7 trillion, an increase of 47.5% over the KRW12.0 trillion resolved in H1 2009.Detailed FiguresDomestic banks’ end-2009 SBL ratios inclusive of the large restructuring-related debt of KRW3.0 trillion in December was 1.22%, dropping sharply by 0.29 percentage points from the end-June 2009 ratio of 1.51% on the back of support to lower SBL.In terms of amount, the total SBLs were KRW15.7 trillion, down KRW3.9 trillion or19.9% from KRW19.6 trillion at end-June 2009.By class, the SBL ratios of both corporate and household loans each fell by 0.33 and 0.16 percentage points respectively in H2 2009 to 1.58% and 0.48%.The SBL ratio of small and medium-sized enterprises (SME) was 1.82%, falling by a significant 0.67 percentage points during H2 2009. The SBL ratio of household and mortgage loans, meanwhile, was 0.48% and 0.37% respectively, the lowest levels for both since figures began to be kept for both in March 2002 and December 2005.In 2009, domestic banks resolved KRW29.7 trillion in SBL, double the KRW14.0 trillion resolved in the preceding year.Of the KRW29.7 trillion, KRW9.5 trillion was re
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Jan 28, 2010
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Jan 20, 2010
- Risk Assessment of Banks' Mortgage Loans
- Household mortgage loans extended by banks totaled KRW 260.1 trillion at the end of September 2009, of which KRW 112.0 trillion (43.1%) are loans with lump-sum redemption contracts, and the remaining KRW 148.1 trillion (56.9%) are loans with redemption by installment contracts.Forty percent of the loans with lump-sum redemption contracts, KRW 44.7 trillion, will reach maturity in 2010.Fifteen percent of the loans with installment contracts, KRW 22.3 trillion, will start to be repaid with interest and principal in 2010.Risk AssessmentCompared with previous years, the amount of loans with lump-sum redemption contracts due in 2010 is relatively moderate. * *KRW44.3 trillion (2008), KRW43.3 trillion (2009), KRW44.7 trillion (2010)The numbers are estimated at the end of the previous year, with Sept. figures used for 2010.The loans with installment contracts, KRW 22.3 trillion, which will start to be repaid with interest and principal in 2010, have also decreased from KRW31.2 trillion of 2009.In particular, given that the rollover ratio of lump-sum payment loans exceeds 95%, the actual amount of household debt which poses a burden of full repayment is just around KRW 2 trillion.The extension of interest-only payment period for loans with redemption by installment contracts also helped to ease household financial bur den; from Nov. ’08 to Oct. ‘09, interest-only payment periods were extended for KRW 10.5 trillion in loans.Considering stabilizing housing prices* and low loan-to-value (LTV) ratio**, it is unlikely that the households’ debt repayment burden will significantly increase. *Housing price change (%, qoq): -1.0(1Q09), 0.4(2 Q), 1.3(3Q), 0.3(Nov), 0.1(Dec) **L TV ratio (’0 9 July): Korea 47.1%, U S 74.9%, U K 85.2% (end-December 2007)*Please read the attached file for details.
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Jan 13, 2010
- Introduction of Foreign Investor Express Card
- The Financial Services Commission (FSC), the Ministry of Justice and the Fn Hub Korea (the Center) of the Financial Supervisory Service have agreed to issue the "Financial Investor Express Card" with an aim to increase the number of foreign executives of foreign financial institutions eligible for fast-track immigration lanes. Also, the Center has published the "Visa Immigration Guide for Foreign Employees of Financial Institutions" to help meet foreign employees' needs related to immigration and visa issues.Financial Investor Express CardWith the introduction of the Financial Investor Express Card, foreign executives of a Korean branch of a foreign financial firm will become eligible to use fast-track immigration lanes.So far, only the executives of a Korean subsidiary of a foreign-invested enterprise and the holders of the Investor Express Card1 have been permitted to use the fast track.However, to reflect the contribution of branches of foreign financial firms to the Korean economy and to help attract foreign investment, the three organizations have decided to expand the benefits of fast-track immigration lanes.The Financial Investor Express Card will be issued to deputy general managers or higher executives, holding a supervisory intra-company transfer (D-7) visa, of a Korean branch with an operation fund of KRW 7 billion or more.The FSC and the Center will complete the preparations by the end of January 2010 and begin to accept applications and issue the card from February. (Please call Financial Hub Korea at +822-3145-7171 for inquiries)The introduction of the card is expected to improve conveniences of foreign investors and promote foreign investment in the financial industry.Visa Immigration Guide for Foreign Employees of Financial InstitutionsTo make a better living environment for foreigners, the Center, with the cooperation of the Ministry of Justice, has been providing foreign employees of financial institutions and their families with supporting service
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Jan 11, 2010
- Progress on Improving Banks' Corporate Governance
- The global financial crisis has shed light on the importance of corporate governance in financial institutions. In particular, banks have been the major beneficiaries of government relief programs* such as government guarantee for bank deposits and foreign debts. However, as the OECD and the BCBS noted, banks’ board of directors often neglected their social responsibility by failing in risk management, pursuing short-term profits, and paying out excessive compensation. Against this backdrop, improving corporate governance in financial institutions, particularly in the banking sector, is being actively discussed at the global level. Direct financial regulations may bring about side effects by undermining financial inter-mediation and adding burden to financial consumers. In contrast, improving corporate governance minimizes the side effects and restores the public trust i n financial institutions to ensure that the financial sector can support the real economy and prevent the recurrence of crisis.An overview of global discussions1. OECDThe OECD reports, The Corporate Governance Lessons from the Financial Crisis (Feb. 2009) and The Corporate Governance and the Financial Crisis: Key Findings and Main Messages (June 2009), assert that corporate governance in financial institutions should be improved, citing that the boards of directors, particularly outside directors, involve problems such as the pursuit of short-term oriented profit, the payment of excessive compensation, and the failure of risk management, and also citing that the current system doe s not give shareholders enough power to hold the management in check. To address these weaknesses, the OECD is working with the FSB to publish a set of recommendations on improving corporate governance, Strategic Response to the Financial Crisis.2. U.K.Since the Turner Review point ed out the need to improve corporate governance, Sir David Walker has led an independent review of corporate governance in the UK banking ind
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Jan 10, 2010
- The 3rd FSB Plenary Meeting Report
- The FSC Chairman Chin Dong-Soo attended the 3rd FSB Plenary Meeting in Basel, Switzerland, on Saturday January 9. Chairman Chin checked how financial reform recommendations the G20 leaders mandated the FSB to make have been implemented and reaffirmed future directions and implementation schedules for financial reforms that will be taken by the FSB in 2010.In regard with the financial crisis, he assessed that as many related issues have been addressed and financial institutions have now easier access to liquidity and capital, thus many financial support programs have been stalled or curtailed. He, however, pointed out that despite the overall recovery from the crisis across the globe, the gap among various markets and individual financial institutions has been widening; therefore, he agreed that financial support for SMEs and othervulnerable sectors necessary to support the real economy should be sustained.Proposals to Stabilize the Foreign Exchange Markets in Emerging EconomiesWith respect to the “Proposals to Stabilize the Foreign Exchange Market in Emerging Economies,” endorsed at the G20 summit in Pittsburgh in September and the G20 finance ministers meeting in November, the FSC, prior to the meeting, distributed to the FSB members the report on the detailed background of the proposals and specific plans to implement. At the plenary meeting, the Korean government shared with the FSB members the report on the detailed background and policies that the Korean government introduced to enhance the soundness of foreign currency market and strengthen related regulations with the aim to reduce foreign currency liquidity risk.The report reasserted the need for international coordination to build a global financial safety net to protect emerging economies vulnerable to foreign currency liquidity risk. The report net to protect emerging economies vulnerable to foreign currency liquidity risk. The report help emerging economies reduce foreign liquidity risk by creating a
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Dec 30, 2009
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Dec 16, 2009
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Dec 09, 2009
- AMCHAM Luncheon Speech
- Ⅰ. Introductory RemarksThank you, Mr. Chairman, for the warm welcome.Members of the American Chamber of Commerce, distinguished guests, and ladies and gentlemen!I am delighted to speak to you today, and I thank Chairman David Ruch and President Amy Jackson for arranging this very special gathering.I am also pleased to meet members of the U.S. business community here in Korea who joined us today.Most of all, as a representative of the Korean government, I thank AMCHAM for its commitment and dedication to advancing economic ties between the U.S. and Korea.I express my confidence that AMCHAM will continue to serve as a vital link that unites us and enhances our partnership.Ladies and gentlemen!I think it's fair to say that this year has truly been a wild ride.Now, the end of 2009 is almost upon us, and a new year is just around the corner.Today, I will use this occasion to look back at the major economic and financial policies put in place this year, and explore the tasks ahead of us.Let me first quickly review some of the recent economic and financial market trends.Ⅱ . Recent Economic and Financial Market TrendsThe global economy fell into a severe recession in 2009 as a result of a financial crisis triggered by the collapse of Lehman Brothers.But this was also a year of renewed optimism as the global economy hit the bottom and started to move into a recovery phase.Fortunately as well, the Korean economy bounced back quite rapidly in the first half of 2009.And this momentum continued into the second half, as the economy grew 3.2% over the previous period in the third quarter.In fact, the OECD recently declared Korea to be the fastest recovering economy among its members and revised upward its growth outlook for Korea.Korea's financial markets also rapidly returned to normal from the first half on the back of more upbeat growth prospect and global financial market stability.Key financial market indicators, including stock prices and CDS spreads, have also returned
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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.
