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Feb 05, 2009
- Korea Economy Overview
- Ladies and gentlemen, I would like to welcome all of you and thank you for taking the time to be with us today.My presentation today largely consists of three parts.Firstly, I will give you a brief overview of Korea’s real economy and financial market and move on to talk about newly emerging risk factors in the Korean economy and their effect on the economy.Then, I will close by introducing how the Korean government is responding to the economic challenges.Now, let me start with the current status of the Korean economy and financial market.First of all, let me talk to you about the current status of Korea’s real economy.As some foreign investors are concerned, it is true that Korea’s real economy is fast deteriorating. Domestic demand is slowing down rapidly with 19.8 percent fall in December industrial output from a year earlier as well as 7.0 percent decline in consumer goods sales. Exports in December also fell by 17.9 percent year-on-year (by 29 percent according to the estimation for the period from Jan. 1 to Jan. 20).However, let me emphasize that such economic slowdown is not limited to Korea and is witnessed commonly around the world following the global financial crisis. The Korean economy is doing rather well compared to other Asian countries like Hong Kong, Taiwan and Singapore.If we compare December industrial output, Korea saw 19.8 percent fall while Taiwan and Singapore suffered 32.4 percent and 13.5 percent decline respectively. Even in terms of export, which is one of the main causes of concern, we see that Taiwan and Singapore have recorded greater fall than Korea with 41.9 percent and 20.8 percent decline respectively.Moreover, Korea is maintaining relatively low unemployment rate of 3.3 percent as of last December.However, things are looking better in the financial market. To our relief, the global financial market volatility has eased slightly, improving investor confidence and financial stability in Korea.The Korean stock market has recent
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Jan 28, 2009
- Understanding Korean Economy (FAQs)
- Q1: How has Korea reacted to the economic difficulties so far?A: The Korean government has worked on expansionary liquidity supply of USD55 billion, tax reduction of USD35 billion, and increased fiscal expenditure of USD16 billion.The Korean government has taken preventive, decisive and sufficient policy measures to get out of the global economic turmoil. The measures mainly cover liquidity supply, FX market stabilization, and tax reduction and expansionary fiscal expenditure. To provide more liquidity in the market and lower interest rates, the Bank of Korea lowered a benchmark interest rate four times by 225bp from 5.25 percent to 3.00 percent. Also, the government has supplied the liquidity of KWR19,500 billion through RP purchases and credit limit raise for small- and medium- sized enterprises (SMEs).Foreign liquidity supply of USD55 billion will have been provided with USD37.6 billion already provided by the end of Dec. ’08. Currency swap arrangements with the US, Japan, and China, amounting to USD30 billion each, have been completed along with the IMF Short-term Liquidity Facility of USD22 billion fixed. The government guarantee on banks’ borrowing in foreign currencies will total USD100 billion.A total of USD35 billion tax reduction will have been implemented from ’08 to ’12 through an oil tax rebate and income/corporate tax reduction. Additional budgets of USD16 billion will have been allocated from ’08 to ’09, which are earmarked for overcoming economic difficulties including high energy prices.Deregulations to boost corporate investment, various job maintenance efforts such as promoting employment of female, the young and old, and social safety net reinforcement are among other measures the Korean government has taken.Q2: What are the key economic policies for 2009? A: The key economic polices for 2009 can be summarized as preparation for the future and job creation. The Korean government will take offensive measures to revitalize the economy a
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Jan 22, 2009
- YOIDO, SEOUL AND MUNHYEON, BUSAN AS INTERNATIONAL FINANCIAL CENTERS
- Summary of the Financial Center Promotion Committee MeetingOn January 21, 2009 the Financial Center Promotion Committee* meeting, chaired by the FSC Chairman, was held and deliberated the designation of international financial center(s). Based on the assessment report on five candidate cities,* prepared by the Evaluation Panel, the Committee members discussed what city or cities to be designated to serve as an international financial center in the region.*Financial Center Promotion Committee was convened on the basis of “Enforcement Decree of the Act on the Creation and Development of Financial Center.” The Committee has 25 members: 10 financial experts, 10 presidents of financial regulatory agencies, and 5 government officials (FSC and Ministry of Strategy and Finance).*Five candidate cities: Seoul (Yoido), Busan (Munhyeon, Bukhang), Incheon (Songdo), Gyeung-gi (Goyang), Jeju (Seoguipo)As a result of careful deliberation, the Committee has reached a consensus to designate Yoido, Seoul as the main Financial Center and Munhyeon, Busan as its specialized financial center. The decision will be submitted to the FSC Committee for its final approval.Detailed plans will be made to develop these two cities as financial centers within a first half of this year through consultation with the related government ministries and regional governments. To facilitate the process, the Financial Center Promotion Committee will form a subcommittee.Major ProgressesIn December 2007 the government enacted legislation called “Enforcement Decree of the Act on the Creation and Development of Financial Center” with an aim to designate and develop a region as an international financial center.* Selection process was set off by operative direction initiatives made in March 2008 and deliberation by the Promotion Committee (convened in June 2008). *According to the “Act on the Creation and Development of Financial Center” a financial center is defined as a region in which both domestic
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Jan 20, 2009
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Jan 12, 2009
- IFSB-FSC/FSS to Host Seminar on Islamic Finance in Seoul
- The Islamic Financial Services Board (IFSB) and the Financial Services Commission/Financial Supervisory Service will jointly host the Seminar on Islamic Finance in Seoul from January 13 to 14, 2009, at the Sogong-dong Lotte Hotel. The FSC/FSS joined the IFSB as an Observer member onAugust 8, 2008, and through this seminar hope to develop a growing interest in Islamic finance.Five separate sessions, which include presentations and discussions, are scheduled during the two-day seminar. Among the topics to be discussed are potential legal and organizational issues for non-Islamic countries attempting to implement Islamic financial systems and their solutions, how to use Shari’ah in cooperation with the current regulatory system, recent developments in the Islamic bond market and issues related to credit rating, and challenges and opportunities for Korea.Approximately 300 participants from home and abroad, including 17 speakers, 14 from abroad, together with participants representing the government, financial institutions, and academic institutions, are expected to attend the seminar. Dr. Jun Kwang-Woo, Chairman of the FSC, will deliver the opening remarks of President Lee Myuang-Bak.The Seminar on Islamic Finance will provide an opportunity to participants to gain comprehensive and practical knowledge of Islamic finance while also offering the chance to network with Islamic finance regulators and financial experts.The IFSB is an international standard-setting organization that promotes and enhances the soundness and stability of the Islamic financial services industry. Founded in Kuala Lumpur, Malaysia on November, 2002, the IFSB, as of December, 2008, has 178 members from 34 countries.* Please refer to the attached PDF for details.
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Jan 09, 2009
- Review of Financial Assistance to SMEs
- I. Review of Financial Assistance to SMEs in 20081. Banks Loans to SMEs(2008) Outstanding amount of loans to SMEs by 18 domestic banks increased by KRW 52.4trl. (from KRW 370trl in 2007 to KRW 422.2trl in 2008)(December 2008) With the year-end effect, the amount of SMEs loans decreased by KRW 1.8trl. However, when including special set-off between loans and deposits carried out to support SMEs (KRW 0.7trl), amortization and sell-off of bad debts (KRW 0.9trl), the actual amount of SME loans was decreased only by KRW 70.9bn.* With the year-end effect (settlement of financial statements at the end of the year, settlement of B2B transaction, etc.), SMEs loans tends to decrease usually in December.When comparing the average decrease amount of SME loans in December for the past 5 years (KRW -2.8trl) with the decreased amount in December last year (KRW -3.6trl), it is not so noticeable.2. Fast-Track (Special Assistance Program to Tackle Liquidity Problems of SMEs)KRW 2.8trl was provided to 1,672 companies through the Fast Track Program from October 13 to December 31, 2008.KRW 1.4trl was provided to 413 companies which experienced loss from currency option such as KIKO.Assistance through the Fast Track Program has been accelerated since last December; the number of assisted enterprises increased by 2.5 times.3. Issuance of P-CBOKRW 1trl of P-CBO was issued in 2008 to help solve financial difficulties of SMEs which could not issue corporate bond due to their poor credit rating.Corporate Bond Market Stabilization Fund underwrote the 3rd issuance, which benefited joined enterprises with lower issuing rate (from 8.4% to 6.6%) and lower additional rate. (from 50bp to 5bp)4. Consultation on SMEs' Financial DifficultiesSince the opening of the ｢Consultation Center for Financial Difficulties of SMEs｣, the accumulated number of consultation cases reached 1,060. (including the consultation carried in related organization of banks)Banks admitted 526 cases (49.6%) and provided KRW
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Dec 30, 2008
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Dec 26, 2008
- “BANK CAPITAL EXPANSION FUND(A TENTATIVE TERM)” SCHEME
- Mainly led by the BOK in consultation with the FSC, the plan to set up the “Bank Capital Expansion Fund” of KRW20 trillion is currently under close review. The target date is January 2009.The fund is not obligatory for commercial banks to subscribe to; it is entirely up to individual banks to decide whether to utilize the Fund.1. Funding SchemeThe capital needed to establish the "Bank Capital Expansion Fund" will be generated from the BOK (approx. KRW10 trillion in loans), investors including institutional investors (approx. KRW8 trillion in investment), and the Korea Development Bank (approx. KRW2 trillion in investment).Funds will be raised on a capital call basis: for each subscription by banks the investing parties will inject the funds in proportion to their commitment ratio.The BOK is currently reflecting on optimal ways to supply funds to the Bank Capital Expansion Fund. Details including the exact amount are to be discussed with the FSC before issuing the finalized scheme.Meanwhile, the government plans to encourage investments from both private and institutional investors in January, reassuring them of the Fund's stability and profitability.2. Management of the FundWhen a bank requests for the funding, the Fund will supply funds in the form of purchasing the bank’s preferred stocks, hybrid capital, or redeemable preferred stocks of banks.To help raise banks' Tier 1 capital, the Fund will buy mainly preferred stocks and hybrid capital. These stocks and capital will be redeemable when the bank exercises the call option after a designated length of period (five years or more). In order to help reduce banks' funding cost the Fund plans to utilize BOK loansTo minimize the external intervention in the subject banks’ management, the Fund will prescribe following requirements:①Seek self-rescue measures, especially to reduce expenses;②Increaselending to low-income borrowers and mid- to long term loans;③ Abstain from asset expansion schemes and increase
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Dec 24, 2008
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Dec 22, 2008
- Amendments to Accounting Standards for FX Translation
- The Financial Services Commission (FSC), The Financial Supervisory Service (FSS), and The Korean Accounting Standards Board (KASB) have agreed to implement a set of measures namely, "Amendments to Accounting Standards for FX Translation." The FSC and the FSS had been engaged in close consultations with market participants such as companies with large foreign debts, financial institutions, and accounting experts regarding the issue of accounting standard of FX translation and transactions. The proposal was affirmed at the Economic and Financial Meeting on December 19, 2008.I. Background● Due to the recent surge of won-foreign exchange rate Korean companies are experiencing huge FX translation losses in their annual report.* When FX rate increases by KRW 100, companies' FX translation loss and debt each increases by KRW 5trn. (based on US$ 50.16bn of domestic companies' foreign borrowings from foreign exchange banks)▶As a result of the drastic rise of the FX rate, Korean companies are exposed to adverse business environments such as downgrading on their credit ratings, early debts redemption, an increase in financial costs, and difficulty with obtaining new credit lines.▶If this situation sustains, financial institutions will have to suffer deteriorating BIS capital adequacy ratio and reduction in their corporate loan facilities. Consequently, this will further prolong the process of economic recovery from the current crisis.●Therefore, it had been deemed necessary to take timely actions to minimize financial burdens on companies and financial institutions, especially those related to accounting standards.II. Way Forward1. Listed Companies and Large Unlisted CompaniesA. Permission of Revaluation on Property Plant and Equipment (PPE)●(As-Is) Revaluation of PPE has not been permitted since 2001, and asset value increases for the past decade have not been reflected on the books.* Fair Valuation permitted in IFRS (IAS 16)●(Improvement) Revaluation of real esta
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Dec 22, 2008
- Improvements in Derivatives Market Supervision
- BackgroundThe financial crisis spread globally through the asset securitization and credit derivatives that preceded the collapse of the sub-prime market. Local companies and investors also suffered heavy losses from either KIKO contracts or large falls in FX/stock prices. This has created a pressing need for an appropriate supervisory system for the derivatives market, especially in regards to strengthening the competitiveness and developing the soundness of Korea’s capital markets ahead of the expected introduction of the Capital Market and Financial Investment Business Act in February 2009.To this effect, the FSC/FSS established last July a joint private-public Task Force Team with the Korea Institute of Finance (KIF), the Korea Securities Research Institute (KSRI), the Korea Securities Dealers Association (KSDA), the Korea Futures Association (KFA), the Korea Federation of Banks (KFB), Korea Exchange (KRX), the Korea Securities Depository (KSD), and industry specialists.The TF Team produced a detailed plan called, “Improvements in Derivatives Market Supervision” after a series of discussions, including a study by industry experts, Task Force consultations, and IMF technical assistance.Summary of ChangesThe proposed plan outlines 4 main areas with 51 sub-categories.1. Reorganizing the derivatives market monitoring system• Strengthening information analysis and its utilization by itemizing information, setting up a database, and establishing a consultative body of experts2. Strengthening the investor protection by taking into consideration the characteristics of each respective product and investor• Providing greater product descriptions, introducing graded canvassing rules, strengthening protection of small investors and businesses, etc.3. Preventing derivatives-based transactions from overexposing financial institutions and posing systemic risk• Strengthening financial company’s internal controls and establishing systems to reduce derivatives tradi
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Dec 18, 2008
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Dec 17, 2008
- European Commission Grants Equivalence to Korea
- 1. Contents of European Commission’s DecisionAs of December 12, 2008, the European Commission (EC) granted equivalence to Korea’s Generally Accepted Accounting Principles (GAAP).** Under European Union (EU) regulations, third countries’ issuers must prepare their consolidated accounts in accordance with International Financial Reporting Standards (IFRS) or GAAPs that are granted equivalence with the IFRS by the year 2009. Final decision to grant equivalence of IFRS is made by the EC and requires conformity in the contents of third countries’ accounting standard as well as credibility of each country’s accounting supervisory system.With this decision, Korean companies listed in European markets are able to use their financial statements using Korean GAAP until the year 2011.This decision is due, in part, to Korea’s efforts to adopt the IFRS and the fact that its accounting supervisory system received a positive review from the Committee of European Securities Regulators (CESR).However, the EC will regularly monitor Korea’s IFRS adoption process and its progress.Meanwhile, the EC has determined that the GAAPs of the U.S., Japan, China, Canada, and India are equivalent to IFRS. Like Korea, the GAAPs of Chinai, Canada, and Indiaii will be monitored regularly on its equivalence status.2. Discussion Progress among Regulatory BodiesKorean regulatory bodies have made efforts to receive positive reviews on Korea’s GAAP’s equivalence status.The regulatory bodies have hosted discussion meetings with the CESR and requested that Korea’s GAAP be included in the review of granting equivalence to third countries’ accounting standard.With visits to the CESR, meetings with the evaluation committee, sending evaluation documents, and actively promoting Korea’s commitment to adopt IFRS and efforts to improve its accounting and supervision system, the regulatory bodies received a positive outcome.3. Expected EffectsWith this decision, Korean companies listed in th
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Dec 09, 2008
- Direction and Process of Corporate Restructuring
- BackgroundKorea’s financial markets have not been immune from the uncertainties prevailing in the global financial markets as the credit freeze and financial institutions loses continue to grow amid concerns that it would further deteriorate corporate liquidity and slowdown the real economy.A process that clearly sets out how the restructuring will be carried out and who it will affect would address the anxiety and uncertainty plaguing the markets through prompt and orderly restructuring.Restructuring DirectionCorporate restructuring will have a focus on saving companies, even though resolution would follow quickly for those companies deemed to be non-viable. Although industry-wide restructuring is not being ruled out, unlike the financial crisis in the late 1990s the current restructuring will center on individual companies and large business groups. Restructuring will commence alongside financial support for companies that are currently on the Fast Track or workout programs as a result of the temporary squeeze in liquidity.Restructuring ProcessCorporate restructuring will proceed under the discretion of the creditor financial institutions, but the Corporate Credit Support Task Force, the Council of Creditor Financial Institutions, and the Creditor Financial Institutions Steering Committee will also bear a part of the responsibilities along with the government.To lend support and add efficiency to the restructuring process, the FSC/FSS launched the Corporate Credit Support Task Force on November 28, 2008 and is now headed by the governor of the FSS.The Council of Creditor Financial Institutions is comprised of each respective company’s major creditor bank and others, which will discuss and decide restructuring process upon convening Council meetings. The creditor banks will categorize companies into four groups with A being normal, B temporary liquidity shortage, C distressed, and D in receivership. The major creditor banks will work through the Council of Cred
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Dec 08, 2008
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Dec 05, 2008
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Dec 04, 2008
- Fn Hub Korea to Support Employment of Overseas Financial Expert
- On December 4, 2008 Fn Hub Korea* launched a program, which supports theemployment of financial experts working in overseas financial companies, to helpincrease the competitiveness of the domestic financial industry.* Fn Hub Korea was established on September 9, 2008, under the Financial HubFormation and Development Act, to assist foreign financial firms already active orstarting a new business in Korea, to help domestic financial companies expandoverseas, and to improve the business environment related to financial business inKorea.The program supports the recruitment, by financial companies in Korea, of financialexperts working in overseas financial companies, such as investment banks.It aims to help meet the demand for capital market experts, the demand can be attributedto the upcoming February 2009 enactment of the Financial Investment Services Capital Market Act, while also bringing in the necessary human resources to transformKorea into a financial hub.Fn Hub Korea will create a database, after receiving the necessary employmentinformation from financial companies, while also developing a system where financialexperts, who wish to transfer or find employment in Korea, will be connected to theirpreferred workplace after uploading their employment requests to Fn Hub Korea’shomepage (www.fnhubkorea.kr).Please refer to the attached file “Overseas Financial Expert Employment SupportProcedure” for a detailed outline of the recruitment process.*Please refer to the attachedPDF for details.
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Nov 25, 2008
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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
