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Mar 20, 2001
- Response to News Media Reports Concerning Financial Aid to Hyundai Group
- In response to several news media reports that the decision by Hyundai creditor banks to provide additional liquidity support to Hyundai Electronics Industries Co. (HEI), Hyundai Engineering and Construction Co. (HEC), and other Hyundai subsidiaries amounted to the granting of special favors to the Hyundai Group, the FSS verified the following issues with the creditor banks:1. Financial Support to HEI and Progress of Self-Rescue PlanUnder a mutual agreement, the financial support to be provided by the creditor banks to HEI can be divided into loans under credit lines, ordinary loans and credit access, and syndicated loans.During a series of meeting held between late-November 2000 and mid-March 2001, the creditor banks agreed to restore HEI’s credit lines up to previous limits. For ordinary loans and credit access, the creditor banks sought to resolve the liquidity shortages experienced by HEI through extension of debt maturity.However, due to protracted disagreements among several creditor banks over their share of liquidity support, the creditor banks convened an emergency meeting on March 10th in order to resolve their differences and strike a new agreement concerning the portion of liquidity support to be provided by each creditor bank.With regard to the syndicated loan that was lead-managed by Citibank and announced on November 28, 2000, it should be noted that only KRW 800 billion of the original target of KRW 1 trillion was successfully raised due to the non-participation of several creditor banks. The decision to proceed with raising the remaining KRW 200 billion is entirely up to Citibank as the lead manager of the syndicated loan. The FSSneither participated in the March 10th creditor bank meeting nor engaged in any discussions in regard to the meeting.Meanwhile, the decision by creditor banks to provide liquidity support to HEI was made on the strict condition that it would fully execute the self-rehabilitation plan announced by the Hyundai Group in Janu
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Mar 15, 2001
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Mar 13, 2001
- Response to Media Coverage on Hyundai Group Companies
- On Saturday, March 10, creditor banks to the Hyundai Group convened an emergency meeting with executives from Hyundai Electronics Industries, Hyundai Engineering Construction, Hyundai Petrochemical, and Hyundai’s financial advisor, Salomon Smith Barney, in order to discuss liquidity problems facing the Hyundai units and to determine feasible methods to resolve them. During the meeting, the participants reaffirmed the viability of the concerned companies and reviewed the progress of self-rescue plans that are being implemented at each firm. In addition, the creditor banks reaffirmed and finalized each bank’s share of liquidity support to Hyundai subsidiaries, which had been agreed upon a few months ago.At the request of the creditor banks, FSS representatives attended the meeting only to ensure the implementation of follow-up measures by the creditor banks and the Hyundai units, and not to influence the creditor banks or their decision to extend additional credits to the Hyundai companies.1. The purpose of the meeting The purpose of the meeting was to adjust and finalize the already agreed specific share of liquidity support to be assumed by each creditor bank, and to devise a timely implementation plan that could mitigate market uncertainties surrounding the companies; it was not to extend additional loans. Between January and March 2001, the creditor banks had already agreed to raise the purchase limit on export bills (on D/A basis) by US$ 600 million for Hyundai Electronics Co. and to provide US$ 400 million in credit guarantees to Hyundai Engineering and Construction Co. However, both companies have been suffering from liquidity shortages due to disagreements among the creditor banks concerning the relative share of liquidity support that each creditor bank had to assume. 2. The criticism of government interferenceWith respect to the Hyundai Group, the creditor banks voluntarily held numerous meetings in the past and agreed to provide financial support to Hyu
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Dec 22, 2000
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Dec 20, 2000
- Complete Capital Reduction was ordered to the 6 banks prior to capital injection by the KDIC
- 1. Conditional approval of 5 banks’ revised self-rescue planAfter reviewing the revised self-rescue plan submitted by Hanvit, Peace, Kwangju, Cheju, and Kyongnam banks, the authorities approved their plan under the condition that they be included as subsidiaries of a government (KDIC) led financial holding company.However, the authorities will also approve mergers with or integration to other sound banks for Peace, Kwangju, Cheju, and Kyongnam bank if they decide to do so. In order to be approved, both designated and partner banks must submit their specific merger/integration plan, which includes MOU, to the FSC before the KDIC starts capital injection. Meanwhile, partner banks are required to be a nation-wide bank with their BIS ratios of 8% or higher as of end-September, 2000.2. The authorities requested KDIC to put capital injection to 6 banks The recent due diligence conducted by the FSS on the six banks (above-mentioned banks and Seoul Bank) confirmed that each of the 6 banks’ liabilities exceeded their assets. Therefore, they are officially designated as ‘ailing financial institutions’ according the relevant financial restructuring laws, and subsequently, KDIC is requested of additional capital injection to the designated banks.The total amount of capital to be injected will be estimated based on the actual and expected losses from selling-off bad loans (substandard and below) of the 6 banks. The main objective is to lower the ratio of substandard and below loans to their total loans to less than 6% and to raise their BIS ratios to more than 10%. 3. Complete capital reduction order Complete capital reduction was ordered to the six banks prior to public fund injection. The shareholders will be granted of rights to demand the banks to purchase their shares at the price stipulated in the relevant laws.* Please refer to the attached file for details.
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Dec 07, 2000
- Policy Directions for 2nd Stage of Banking Sector Restructuring
- In line with plans to complete the second phase of financial sector reform, the government is accelerating the pace of banking sector restructuring by actively promoting the creation of bank financial holding companies and consolidation among healthier banks by the end of 2000. The measures are being taken in order to lay foundations for a world-class and internationally competitive financial system in Korea.1. BackgroundSince the beginning of Korea’s financial crisis in late-1997, the number of banks operating in Korea has been reduced to 22 from 33 by PA and mergers as of end-November 2000.The government is pursuing the second stage of financial restructuring with a focus on strengthening the competitiveness of the domestic financial industry by clearing up ailing assets such as non-performing loans and implementing forward-looking reforms based on the results of the initial stage of financial restructuring.2. Policy Directions for 2n d Stage of Banking Sector RestructuringIntroduction of Financial Holding CompaniesBased on the assessment by the independent Management Evaluation Committee (MEC), Hanvit Bank, Peace Bank of Korea, Kwangju Bank and Cheju Bank were judged to be not self-sustainable. Consequently, these four banks and Kyongnam Bank, which was under a management improvement requirement, will be subject to inclusion as a subsidiary of a government-led FHC in accordance with the policy directions reported to the Tripartite Commission of government, management and labor on July 12, 2000.To promote increased consolidation in the domestic banking sector, the government may also offer priority approval to sound banks and regional banks if they are willing to be voluntarily integrated as an FHC. Banks wishing to join the government-led FHC will be included in the FHC if it will contribute to the formation of a large and financially sound “leading” bank.Presently, the government plans to launch its FHC during the first quarter of 2001 and subsequently res
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Nov 20, 2000
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Nov 09, 2000
- FSC/FSS Announces Management Improvement Measures for 6 Banks
- Based on the assessment of management improvement plans for 6 commercial banks by the independent Management Evaluation Committee (MEC), the FSC/FSS announced management improvement measures for the banks on November 8, 2000.The 6 ailing banks were ordered to submit management improvement plans to the MEC because they had posted a BIS capital adequacy ratio below 8% as of end-June 2000 or had received direct injections of public funds. Moreover, the banks were also subject to Prompt Corrective Action, and either Management Improvement Recommendations or Management Improvement Requirements.According to the results of the evaluation, Chohung Bank and Korea Exchange Bank were deemed as being conditionally self-sustainable, while Hanvit Bank, Peace Bank of Korea, Kwangju Bank and Cheju Bank were deemed as being not self-sustainable. Therefore, the FSC approved Management Improvement Plans submitted by Chohung and Korea Exchange Banks with the reservations as suggested by the MEC, but rejected the plans submitted by the latter four banks.Details of Management Improvement MeasuresIn line with the evaluation results, Chohung Bank and Korea Exchange Bank have been ordered to submit revised action plans that conform to the MEC’s following suggestions by November 22, 2000. In the case that the banks fail to submit or implement the revised action plans, or if FSS deems submitted plans as inadequate, they will be subject to enforcement of stricter management improvement measures including stiffened PCA procedures.Suggestions for Chohung Bank:- Maintain ratio of substandard or below loans to total loans at 6 % or lower by the end-June 2001, and 4% or lower by end-2001, through the swift and resolute clean up of all non-performing assets;- Achieve per-employee operating income before loan-loss provisioning of 220 million won or more for the fiscal year 2001Suggestions for Korea Exchange Bank:- Ensure capital increase by taking supplementary measures such as the sale of its owne
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Nov 09, 2000
- Evaluation Results of 6 banks self-rescue plans
- I. Measures to the six banks which submitted the management improvement plans□ Based on the MEC's review results of the plans, proper measures will be taken in accordance with the relevant regulations. □ Self-rescue plans of Chohung Bank and the Korean Exchange Bank were approved with a condition to make some required revisions in accordance with the relevant financial sector restructuring laws and bank supervisory regulations.o While allowing independent management, the MEC required Chohung Bank and the KEB to submit their revised plans which include the committee's recommendations by the 22nd of November, 2000.o If they fail to either submit or implement the revised plans, or if the plans are disapproved by the Governor of the FSS, certain corrective actions will be enforced in accordance with the relevant laws and regulations. MEC's recommendations for Chohung Bank (1) To lower the ratio of loans which are substandard and below down to lower than 6% by the end of June, 2001, and further down to 4% by the end of 2001 through vigorous and prompt settlement of NPLs.(2) To achieve the per capita operational profit before loan loss provisioning of more than 220million won by 2001, through numerous efforts such as expanding profitability and down sizing.* per capita operational profit before loan loss provisioning : (operational profit + loan loss provisioning expenses) / total number of employees MEC's recommendations for Korea Exchange Bank (1) To take complementary measures such as additional sell-off of the shares of KEB Card Co. and issuance of subordinate bonds will be sought in case the capital increase through public subscription (completion of the paying up shares) can't be done by the first half of 2001.(2) To reduce the ratio of loans which are substandard and below down to lower than 6% by the end of June, 2001, and further down to 4% by the end of 2001 through vigorous and prompt settlement of NPLs.(3) To meet the target profitability by 2001, through
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Nov 06, 2000
- Clarification of Concerns Regarding the Announcement of the List of Non-Viable Companies
- Clarification of Concerns Regarding the Announcement of the List of Non-Viable Companies1. There are views that the credit risk assessment results for Hyundai Engineering Construction and Ssangyong Cement Industrial Co. translate into the de facto survival of two companies.The results of the credit risk assessments by creditor banks of Hyundai Engineering Construction and Ssangyong Cement do not mean de facto survival of the two companies, as both companies are still facing the prospect of bankruptcy or court receivership should their self-rescue efforts fail. In this sense, the assessment and the decision not to provide additional financial aid to the companies should be seen as a strong message from creditor banks that they will treat the two companies like other ailing companies that fail to produce and meet the stipulations of adequate self-rescue plans.During their evaluations, creditor banks prudently considered the potential impact that the simultaneous bankruptcies of Hyundai Engineering Contruction and Ssangyong Cement, immediately following the bankruptcy of another large company, Dong-ah Construction, would have on domestic financial markets. Moreover, the creditor banks noted the legal problems that could arise if the two companies applied for court receivership or liquidation when, in fact, they were not currently bankrupt. Thus, based upon their comprehensive evaluations of the two companies’ status, the creditor banks to the two companies deemed it prudent and responsible to allow the companies to proceed with self-rescue efforts, albeit without additional financial support.The decision to suspend the extension of new credits to the two companies was made by creditor banks to ensure swift execution of self-rehabilitation plans, and was reinforced by their announcement that the companies will face court receivership should they experience new liquidity problems. Creditor banks will closely monitor the self-rehabilitation process, and will start the c
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Nov 03, 2000
- Creditor Banks Announce Results of Credit Risk Assessments of Potentially Non-viable Corporations
- On November 3, 2000, Hanvit Bank and 20 other creditor banks announced the results of their credit risk assessments of 287 potentially non-viable corporations. Based on these evaluations, companies deemed viable will be eligible for additional financial support while those deemed non-viable may face immediate liquidation.The 21 creditor banks conducted credit risk assessments of the 287 potentially non-viable corporations, which include those with over 50 billion won in outstanding extended credits, from October 5, 2000 to November 3, 2000. The assessments considered industrial risk, operational risk and financial risk, and each creditor bank established its own assessment criteria and Credit Risk Assessment Committee (CRAC) to conduct the evaluation. Each CRAC was comprised of around 10 members, and included outside experts to ensure the fairness and objectivity of the assessment. The Credit Risk Assessment Coordination Group, which was made up of representatives from each of the creditor banks, mediated discrepancies that arose among the banks and made a final decision on the viability of concerned corporations.According to the results of the credit risk assessments, creditor banks will prepare detailed financial support programs for the 69 companies assessed as having structural problems but deemed viable with additional financial aid from their respective creditor banks.However, if a company that was previously classified as a normal or viable company in the credit risk assessment faces a new liquidity crisis, creditor banks must take responsibility for their failure to properly assess the company’s viability and exposure to risk.With their announcement of the results of credit risk assessments of potentially non-viable companies, creditor banks expect to strengthen the transparency and stability of financial markets, and to regain investor confidence. Looking ahead, the creditor banks will assess the credit risks of their respective client companies on a quar
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Oct 05, 2000
- Potentially Non-viable Corporation Subject to Credit-risk Assessments
- In line with the second phase of financial sector restructuring, the Financial Supervisory Service (FSS) announced that creditor financial institutions will assess the credit risks of potentially non-viable companies, and manage them accordingly. The action is expected to place the long-deferred resolution of ailing companies back on the right track and help restore stability in Korean financial markets by promptly resolving non-viable companies experiencing critical problems such as a liquidity shortage.Companies with outstanding extended credit of 50 billion won or more as of July 31, 2000, will be initially examined. Among these companies, those that fall into one of the following categories will be subject to credit risk assessment: 1) Companies to which loans previously extended are now classified as “precautionary” or lower under FLC evaluation; 2) Companies that have recorded interest coverage ratio of less than 1 for three consecutive years. For those firms that are deemed potentially non-viable under each banks’ specific regulations and guidelines, the creditor banks will determine, regardless of the amount of outstanding extended credit, whether or not to conduct credit risk assessment.A Credit Risk Assessment Committee (CRAC) will be established at each creditor bank in October and will conduct risk assessment under its own guidelines. These guidelines, however, should comprehensively reflect qualitative factors such as industry risk, business risk, management risk, financial risk, and future cash flows. The Committee will be comprised of around 10 members, and should include outside experts while excluding any members who may present a conflict of interest or hold undue influence over the credit decision.From November, creditor banks will group the companies subject to risk assessment into three categories: Companies with normal operation, companies with temporary liquidity problems, and companies with severe liquidity problems. For the first two g
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Oct 05, 2000
- Total Bad Loans in Financial Sector Decrease in 2nd Quarter
- As of end-June 2000, the total amount of loans classified as “ substandard” and below at all domestic financial institutions stood at 82.5 trillion won, which represent s a decrease of 7.9 trillion won from 90.4 trillion won recorded as of end-March 2000.Net substandard and below loans, which are substandard and below loans minus loan loss provisions, also fell to 44.0 trillion won. Accordingly, the ratio of substandard and below to total loans was reduced to 13.6 percent, which is down 1.7 percentage points from end-March 2000. Non-performing loans totaled some 60.9 trillion won, down 3.2 trillion won from end-March 2000, and accounted for 10 percent of total loans.At banks, merchant banks, and merchant banking accounts in securities firms, the loans graded as substandard or below include those classified as “ Substandard” , “ Doubtful” , and “ Estimated Loss” according to the Forward Looking Criteria (FLC), which reflect all potential losses in the loans. For other financial institutions, substandard and below loans refer to non-performing loans, which includes all loans overdue for more than three months and non-accrual loans.Continuing sales and write-offs of bad loans were the main reasons for the decrease. During the period, domestic financial institutions disposed of 3.3 trillion won worth of bad loans through issuance of asset backed securities (ABS). In addition, they also had 3.3 trillion won worth of bad loans written off.Banks accounted for 56.5 trillion won, or 68.5 percent, of total substandard and below loans in the domestic financial sector. Non-bank financial institutions followed with 16.5 trillion won, or 20.0 percent. Insurance companies and securities firms accounted for 5.4 trillion won and 4.1 trillion won, respectively.As noted, substandard and below loans in the domestic financial sector were down as of end-June 2000 from end-March 2000. The greatest reduction in bad loans, however, was seen in the banking sector. Overall, ba
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Sep 25, 2000
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Sep 06, 2000
- FSS to Hold Inaugural Meeting of International Advisory Board(IAB) on September 25-26, 2000
- On September 25-26, 2000, the FSS will hold the inaugural meeting of the International Advisory Board (IAB) in Seoul. Jointly sponsored by the FSS and the World Bank, the IAB is a panel of thirteen distinguished economic and financial experts who will advise the FSS and Korean government on major financial policy, reform and regulatory issues.The main objective and purpose of the IAB will be to provide advice to the FSS regarding policy issues on the development of a financial services sector that best serves the needs of the Korean market and consumers in the 21st century. The IAB will also assist the FSS in the implementation of a sounder regulatory framework and stronger financial architecture, and will provide advice concerning financial sector issues that are consistent with a long-term vision and with introducing international best practices at both public and private sector institutions. A primary focus of the IAB will therefore be to advise the FSS on strengthening regulatory and supervisory functions in the most highly efficient and effective manner. The IAB will also provide recommendations to the FSS, based on previous experience, on a case-by-case basis for issues that require urgent corrective action.The IAB is composed of thirteen renowned experts from varying backgrounds in finance and economy, including financial regulation, banking, capital markets, insurance, and macroeconomics. At the inaugural meeting, the IAB members will each deliver individual presentations on specific topics related to the current status and future prospects of the Korean financial market and industry. (Refer to Appendix for IAB Member List)Through the establishment of IAB, the FSS expects to reap the following benefits: • Visions and strategies for the development of sound financial industry in Korea• Enhanced compatibility of financial supervisory policies with international standards• Improved communication with international supervisory agencies and authorities •
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Jul 14, 2000
- Policy Direction for Development and Reform in the Financial Industry
- At the Tripartite Commission meeting on July 12, FSC Chairman Yong-Keun Lee, who is also a special member of Tripartite Commission, reported “Policy Direction for Development and Reform in the Financial Industry.” The policy direction was based on the government’s view on the request of the Korea Financial Industry Union (KFIU) regarding financial reform. The details are as follows; 1. Basic directions for financial policy • The items below will be declared and enacted as an order of the Prime Minister or a decision of the Cabinet Council: i. Remaining unnecessary or excessive legal regulations that restrict the managerial independence of banks will be abrogated in line with ongoing renovations of the regulatory framework in the nearest future.ii. Management transparency and responsible management of banks will be guaranteed through the prohibition of outside interference, special favors and undue pressure, while the board of directors at banks in which the government is the majority shareholder will assume responsibility for all major managerial decisions.iii. Decision-making or enforcement of government policies aimed at stabilizing financial markets will be undertaken through clear and transparent manner and procedures, such as documentation in order to avoid any suspicion or misunderstanding.2. On the continuous promotion of financial reforms• The second stage of financial sector reform and restructuring, which is aimed at enhancing the global competitiveness of domestic financial institutions, will be promoted and based upon the following principles:i. Financial reform will be pursued and promoted based strictly on market principles.ii. The government will actively provide support for financial reform, including the introduction of the financial holding company system, continuing reform of the financial market infrastructure, preferential treatment in granting licenses, and purchases of subordinated bonds (from financial institutions requiring additio
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Jul 07, 2000
- Completion of Asset Clean-up of ITC Trust Funds (With Attachment)
- This press release is to clarify the completion of clean-up efforts regarding trust funds at domestic Investment Trust Companies (ITCs), Investment Trust Management Companies (ITMCs), and merchant banks. With implementation of the mark-to-market evaluation system for bonds, all ITCs, ITMCs and merchant banks are required to reveal bad assets, mainly bad bonds, in trust funds. Furthermore, bad assets must be duly assessed and written off in order to regain investor confidence by enhancing transparency in fund asset management. As a result, all trust funds at ITCs were evaluated and audited by outside experts as of June 30, 2000. According to the results of the evaluation and audit, all of the funds have been completely cleaned of bad assets and their current financial status has been accurately reported.The total amount of bad assets held by ITCs was estimated at 7.1 trillion won as of the end of January 2000. Of this total, it was estimated that 3.1 trillion won was to be written off or assumed as losses. As of the end June 2000, however, potential losses amounted only to 0.9 trillion won as 2.2 trillion won had already been written off. Potential losses refer to bad assets that should be recognized as losses but are not realized through write-offs. In fact, three different methods were utilized to clean up bad assets in ITC trust funds as of the end of June 2000: the write-offs of bad assets from trust accounts, transfer to sales units, i.e. securities companies, in light of burden sharing, and the securitization of bad assets through the issuance of Collateralized Bond Obligations (CBOs). As such, total bad assets were assessed from three different sources. 2.3 trillion won was held in the ITCs’ trust accounts, 0.4 trillion won was recognized as it originated from ITCs although transferred to sales units, and 4.4 trillion won arose from buying back subordinate class CBOs. First, ITCs subsequently wrote-off 1.2 trillion won, or 53.5%, of the 2.3 trillion won held
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Jul 03, 2000
- Commercial Banks Disclose Potential Losses
- On June 30, 2000, Korean commercial banks disclosed potential losses in their assets in accordance with the stricter disclosure rules of the forward looking criteria (FLC). Potential losses refer to losses that would additionally be incurred following the application of the FLC to all borrowers. As of end-March 2000, potential losses amounted to 3.9 trillion won, including those newly accrued through the end of June. In addition, commercial banks will be required to transform into “clean banks” through the swift resolution of impaired assets and reinforcement of capital bases.In this regard, the FSS announced policy measures to enhance the transparency of bank management. Under the new measures, potential losses will be reflected in banks’ income statements within the time framework agreed to with the IMF in order to promote investor confidence and to expedite completion of management normalization efforts at commercial banks. Additional injections of public funds will also be considered if deemed necessary and under the strict condition of more vigorous self-rescue efforts in place.BackgroundThe FSS introduced the FLC as the new standards for asset classification effective from December 31, 1999, in order to fully incorporate a borrowers’ capacity to repay loans. However, investor confidence has not been restored to the targeted level due mainly to market perceptions that banks remain vulnerable to unrevealed potential losses. In fact, impaired assets related to companies currently under workout programs have been given preferential treatment in the course of pursuing corporate sector restructuring. Loans extended to companies under workout programs were classified as either “precautionary” or “substandard” and are required a minimum 2 to 20 percent loan loss provisioning. Also, the FLC was not able to account for potential losses in companies under court receivership and court mediation procedures as well as losses resulting from holding secured CP
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Jul 01, 2000
- Clean-up of Bad Assets in Trust Funds of ITCs, ITMCs Completed
- With the implementation of the mark-to-market evaluation system for bonds, ITCs and ITMCs are required to reveal bad assets, mainly bad bonds, in trust funds. Furthermore, the bad assets were required to be fairly evaluated and written off in order to regain investor confidence by enhancing transparency in fund asset management. As a result, all funds at ITCs, ITMCs and merchant banks were evaluated and audited by outside experts as of June 30, 2000. According to the evaluation and audit results, all of the funds have been completely cleaned of bad assets and their financial status have been fairly stated.ITCs and ITMCs transferred bad assets from trust accounts to their own accounts and issued Collateralized Bond Obligations (CBOs), thereby sharing a major portion of the losses stemming from bad assets between IT(M)Cs and fund selling agencies. In addition, ITCs and ITMCs wrote off 1.2 trillion won of bad assets in the funds. According to the evaluation, bad assets in trust accounts totaled 2.3 trillion won and total losses were estimated at 1.2 trillion won, or 53.5 percent. The remaining 1.1 trillion won, which represents 0.8 percent of total assets in trust accounts, is expected to be collected from debtors. Bad assets were written off at ratio set under strict criteria in order to be fully account for. Write-offs were made for both Bankrupted bonds and Quasi-bankrupted Bonds, which are bonds that did not go into bankruptcy yet but were deemed so by the government. Bankrupted Bonds were written off at a ratio of above 50 percent, and Quasi-Bankrupted Bonds at a ratio of above 20 percent. Despite write-offs, fund yields were not affected, remaining at around 8 percent per annum. Funds under the mark-to-market evaluation system recorded higher yields than the funds under the book value evaluation system. In order to enhance transparency in fund management, the results of fund management such as yields on securities, amount of bad assets and write-off ratios will b
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Nov 30, 1999
