Bond Market in Korea

Bond Market Development:The Case of South KoreaBond Market Development:The Case of South Korea

Presented By: Yuvraj SamantRoll No: 784

BBA(H) LLB(H), National law university, JodhpurVII Semester FMRS

OverviewOverview

Development of Korean Bond Market: History 1

Development of Korean Government Bond Market 2

Development of Korean Corporate Bond Market 3

Special Topics: New Asset Backed Securities4

Development of Korean Bond Market: History 1

0

100

200

300

400

500

600

700

800

1980 1990 1995 2000 2003.10 2005

Money Market Bond Market Stock Market

Development of Korean Bond Market: HistoryDevelopment of Korean Bond Market: History

Source: Bank of Korea

USD Billion

IMF Crisis

Amounts Outstanding

0

50

100

150

200

250

1990 1995 2000 2003 2005

YearGov. Bank MSB Agency Corp.

Source: Bank of Korea

USD Billion



Source: Asia Bond Monitor 2005

Development of Korean Government Bond Market 2

Before & After the CrisisBefore & After the Crisis

After the currency crisis: Dazzling Development– Government bond Market: To finance public fund for financial

restructuring and boost depressed economy by fiscal pump priming (Government-led Development)

– The government dramatically increased the size of KTB issuance from around W7 trillion ($billion) in 1997 to W56 trillion ($billion) in 2004.

– In terms of outstanding balance, the total amount of KTBs has increased from W25 trillions as of the end of 1996 to more than W123 trillion as of end 2004.

Before the currency crisis: small and under-developed Markets for government bonds and government-guaranteed bonds

were not well-developed (conservative fiscal policy) As a result, the 3-yr corporate bond emerged as the benchmark

bond

Government Bond Market -Institution Building Government Bond Market -Institution Building Reforms in KoreaReforms in Korea

1998.8 Announcement of ‘Government Bond Market Stimulus Plan’

1999.3 Establishment of Inter-Dealer market (IDM)

1999.3~1999.6 Test period of Primary Dealer system

1999.7 Enactment of Primary Dealer system

1999.9 Introduction of government bond futures

1999.11 Introduction of DVP system

2000.2 Introduction of Inter-Dealer Brokers (IDB)

2000.3 Securities financing facilities for primary dealers

2000.5 Introduction of reopening system

2000.8 Switch from multiple price auction to Dutch auction

2002.10 Mandatory Exchange trading requirement for benchmark issues

2003.1 Strengthening obligations of primary dealersUnifying interest payment dates in preparation for introducing STRIPS

2005 Introduce STRIPS

2006 Issue 20 year bondsIssue Inflation-Indexed BondsDesign products for retail investors

The Fungible Issue System (Reopening System)The Fungible Issue System (Reopening System)

• Bonds have identical maturities and coupon rates.

• Reopening System expands the size of bond issuances of the same maturities.

Effect of Reopening SystemEffect of Reopening System

Volume of Benchmark Issues

0

1

2

3

4

5

6

7

Non- fungible 2000.10월 2001 2002 2003

volum

e (tr

illion

won

)

Volume of Benchmark Issues

3.5 times

greater

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2000

-01

2000

-03

2000

-05

2000

-07

2000

-09

2000

-11

2001

-01

2001

-03

2001

-05

2001

-07

2001

-09

2001

-11

2002

-01

2002

-03

2002

-05

2002

-07

2002

-09

2002

-11

2003

-01

2003

-03

국채회전률 회사채회전률

Treasury bonds

Corporate bonds

Turnover Rates

The turnover rates of GB is 6 times larger than that of CB.

• 1999.3 Establishment of Inter-Dealer market (IDM)• 1999.7 Introduction of Primary Dealer system

- 24 institutions designated as primary dealers - 2% Minimum requirement: Acquisition & Trading

• 2000.2 Introduction of Inter-dealer brokers (IDB)• 2000.3 Providing financing facilities for primary dealers - Line of credit provided (at cheaper rate)

History of PD SystemHistory of PD System

PrivilegesPrivileges ObligationsObligations

- Exclusive participation in government bond auctions

- Access to securities financing facilities for secondary market trading

- Regular consulting partners for the treasury department at the Ministry of Finance and Economy

- 5% minimum underwriting & trading (every 6 months)

- Provide bid/ask quotes (min vol and max spread constraint)

- 40% Mandatory exchange trading

- Reporting requirement of position and

trading information of the government bonds (To Treasury)

• Korea Stock Exchange (KSE) & OTC Market

• New Policy measures for activating KSE market

2002.10 Mandatory exchange (KSE) trading requirement - 20% of Benchmark Issues

2003.01 Obligations of primary dealers strengthened - Exchange trading requirement increased from 20% to 40% - Minimum trading amount increased from 2% to 5%

Primary dealers should trade benchmark issues of the Government Bonds in KSE.

Primary dealers should trade benchmark issues of the Government Bonds in KSE.

VS.

Mandatory Exchange Trading RequirementMandatory Exchange Trading Requirement

The proportion of benchmark issue trading within the exchange has significantly increased since Oct. 2002.

The proportion of benchmark issue trading within the exchange has significantly increased since Oct. 2002.

Benchmark Non-benchmark

Exchange Trading Proportions (%)(Benchmark vs. Non-Benchmark)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Jan-0

2

Mar-

02

May-0

2

Jul-

02

Sep-0

2

Nov-0

2

Jan-0

3

Mar-

03

May-0

3

Jul-

03

Sep-0

3

Nov-0

3

Jan-0

4

Mar-

04

May-0

4


Gov Bond Trading Volume (KSE vs. OTC)Gov Bond Trading Volume (KSE vs. OTC)

The Trading volume in the OTC market has not been decreased. The Trading volume in the OTC market has not been decreased.

-

100,000

200,000

300,000

400,000

500,000

600,000

J an- 02 Apr- 02 J ul- 02 Oct- 02 J an- 03

Total(D+E)ExchangeOTC market

Strengtheningobligations ofprimary dealers

Mandatory Exchange Trading Requirement For benchmark issues


Bid-Ask Spreads of Benchmark Issues Bid-Ask Spreads of Benchmark Issues

Bid-ask spreads of the benchmark issues decreased sharply after the new policy in 2002.

Bid-ask spreads of the benchmark issues decreased sharply after the new policy in 2002.

0

5

10

15

20

25

J an- 02 Apr- 02 J ul- 02 Oct- 02 J an- 03

18.1bp

6.7bp


3-Year KTB Futures – Global Status3-Year KTB Futures – Global Status

(Source: FIA, January~June 2003)

<Top 10 Gov Bond Futures Contracts>(in 1,000 contract)

Rank Contract(Maturity) Volume Exchange

1 Euro Bund(10) 129,320 Eurex

2 Euro Bobl(5) 78,297 Eurex

3 T-Note(10) 66,531 CBOT

4 Euro Schatz(2) 59,605 Eurex

5 T-Note(5) 33,204 CBOT

6 T-Bond(30) 30,452 CBOT

7 T-Bonds(3) 9,190 SFE

8 KTB(3) 5,452 KOFEX

9 Long Gilt(10) 4,883 Euronext-Liffe

10 JGB(10) 4,501 TSE

Liquid Gov. Bond Futures MarketLiquid Gov. Bond Futures Market

Recent Trends in Government Bond Market -Recent Trends in Government Bond Market -Institution Building Reforms in KoreaInstitution Building Reforms in Korea

Before 2005, reform focused on measures to reduce issuing cost by improving liquidity of the benchmark issuesAfter 2005, reform focuses on measures to reduce issuing cost by meeting diverse investors’ need

2005

2006

• Introduce STRIPS

• Issue 20 year Bonds• Issue Inflation-Indexed Bonds• Design products for retail investors

Development of Korean Corporate Bond Market 3

Development of Corporate Bond MarketDevelopment of Corporate Bond Market

Financial Crisis (97.11)

Daewoo Crisis (99.8)

SKG & Credit Card Crisis (03.3)

Credit shock

Market ImpactABS (Asset Backed Securities) development to handle NPLs

Massive Corp. Bond Issuance to Refi Bank Debts (From Banks to ITCs)

Market ImpactMTM accounting

for ITCs

Establish Bond Pricing Agency

Improve Post- Trade Transparency

Improve Credit Rating

Market ImpactCredit card debt roll-over problems

Realizing the need for systemic risk monitoring system Realizing the Importance of Credit Bureau Plunge of ABS markets

Credit shock Credit shock

Market ImpactIssuance of P- CBOs to Refi Corp Bond Debt

Rapid Pick-Up of

ABS Markets

Credit shock

Maturity Concentration Crisis (2000)

Establishment of a securitization vehicle

- Onshore ABS SPC- Trust company

- Offshore ABS SPC

Registration of a securitization plan with

the FSC

Acquisition of securitization assets by

the securitization vehicle

Appointment of servicer and transaction

administrator

Issuance of asset-backed securities

In September 1998, the Asset Backed

Securitization Act (the “ABS Act”) was

passed.

- The ABS Act provides a means to

engage in securitization transactions

with legal certainty.

- Tax benefits are conferred on

transactions under the ABS Act.

- Processes such as perfection of

security interests against third parties

are streamlined.

The ABS Act was originally intended to

facilitate the disposal of non-

performing loans.

Korea’s ABS system: IntroductionKorea’s ABS system: Introduction

Securitization Process under the ABS ActThe introduction of ABS Act in 1998

1997 1998 1999 2000 2001 Total

KAMCO (A)

8,345.3 22,253.9 7,761.1 1,040.7 3,816.3 43,217.3

Banks (B) - 16,010.2 18,036.9 35,891 38,192.2108,130.

3

Total (C) 8,345.3 38,264.1 25,798 36,931.7 42,008.5151,347.

6

(B) / (C) 0% 42% 70% 97% 91% 71.4%

(billion won)

1998 1997 2000 2001 Total

Collected 5,491.7 5,048.2 8,357.9 9,969.7 28,867.5 (25.8)

Write off 265.2 5,170.7 10,779 11,600 30,514.9 (27.3)

ABS 802.1 4,433.7 10,894.1 16,129.9 (14.4)

Direct Sale 3,937.9 1,831.1 5,769 (8.6)

Debt – Equity Swap

693.9 1,504.6 1,077.7 3,276.2 (2.9)

Other 7,553.3 6,322 6,877.9 2,722.9 23,476.1 (21)

Sales to CRV 96.7 96.7 (0.1)

Total 16,010.2 18,036.9

35,891 38,192.2 108,130.3

(billion won, %)

Troubled Loan DisposedTroubled Loan Disposed

By BanksBy Banks

Contribution: “Spare-Tire theory”

* Corporations mitigated credit crunch problems by issuing massive

amount of corp. bonds.

Capital market as a parallel circuit to bank financing

* Market interest rates were stabilized since corp. credit crunch

problems were mitigated & thereby it contributed to high growth in

1999.

Corporate Bonds in Bank RestructuringCorporate Bonds in Bank Restructuring

-1500

-1000

-500

0

500

1000

1500

2000

1997 1/4 1998 1/4 1999 1/4 2000 1/4 2001 1/4 2002 1/4

government bank financial Inst. corporation

unit: 10 billion won

Amount of bond Issuance (Net)Amount of bond Issuance (Net)

ITCs assumed credit risk with little discipline.

Unviable firms could extend their lives. Easy financing reduced Chaebol’s incentive to restructure

their businesses.

- massive default and recurrent credit crunch

- increased ultimate costs of restructuring!

Maturity Concentration & credit crunch in 2001!

Credit Shocks: Daewoo Default and Maturity Credit Shocks: Daewoo Default and Maturity ConcentrationConcentration

No Free Lunch!!!!!!!





Credit shock

Market ImpactMassive Corp. Bond Issuance to Refi Bank Debts (From Banks to ITCs)

ABS (Asset Backed Securities) development to handle NPLs

Market ImpactMTM accounting for ITCs



Improve credit rating





Rapid Pick-Up of

ABS Markets

Credit shock


Bond Pricing Agencies for Mark-to-Market System in KoreaBond Pricing Agencies for Mark-to-Market System in Korea

KIS PRICING

Paid-in Capital KRW 3 billion

BPBPKorea Bond

Pricing

Paid-In Capital KRW 5 billion

Paid-In Capital KRW 4.75 billion

The KSDA monitors thesecompanies.

- Nov. 1997: decided to introduce “Mark to Market”- Dec. 1999:KSDA provided Matrix Pricing - Jun. 2000:3 credit rating agencies launched 3 BPAs under government approval

-Oct. 2000: BPAs began pricing on MTM fund- 2002: MTM applied to

Bank’s Trading book, Trust account , Insurance Co.’s special Trust account, securities Co.’s accounts

- Oct. 2003: KDSA stops

matrix pricing

Improve Post Trade Transparency Improve Post Trade Transparency of Bond Marketsof Bond Markets

KSDA requires dealers to report all bond transactions (including both corporate and government bonds) to KOSCOM CHECK Terminal within 30 minutes in 1999 (and 15 minutes since 2004)

NASD begins full dissemination of transaction and price data on the entire universe of corporate bonds to retail investors using TRACE (Trade Reporting and Compliance Engine). Dealers must report corporate bond transactions to TRACE within 30 minutes, and that window will be reduced to 15 minutes in July 2005

Paid-in Capital: 33.5 billion won

Seoul Credit Rating & Information

Paid- in Capital: 13.7 billion won 227 Employees

KOREA INFORMATION

SERVICEPaid-in Capital: 23.8 billion won

163 Employees

Paid-in Capital: 24.3 billion won 183 Employees

Improve the Quality of Credit Rating Agencies Improve the Quality of Credit Rating Agencies (CRA)(CRA)

In 2006, Ministry of Finance and Economy of Korea plans to lower the barriers in entering the Korean credit rating industry in 2006, so that foreign agencies, such as S&P, Moody’s and Fitch may easily get into the Korean market.

Korean CRA Market

Foreign CRAs





Credit shock

Market Impact Massive Corp. Bond Issuance to Refi Bank Debts (From Banks to ITCs)


Market Impact MTM accounting for ITCs




Market Impact Credit card debt roll-over problems



Market Impact Issuance of P-CBOs to Refi Corp. Bond Debt

Rapid Pick-Up of ABS Markets

Credit shock


Create a systemic risk (due to credit crunch problem)

A temporary problem: Chaebols paid off debts (low interest rate, higher earning, less investment)

0

5,000

10,000

15,000

20,000

25,000

1998/ 1 1999/ 1 2000/ 1 2001/ 1 2002/ 1 2003/ 1 2004/ 1 2005/ 1 2006/ 1

Above A BBB BB-B below CCC unrated

1 billion won

Maturity Concentration (Rollover) ProblemMaturity Concentration (Rollover) Problem

Credit guarantees for a pool of

corporate bonds / loans

Combining mechanisms of ABS

and credit guarantee

Facilitated corporate financing

in a short period of time

Credit Crunch: Securitization & Credit Guarantee Credit Crunch: Securitization & Credit Guarantee

Credit Guarantee Services by KCGF

23 SMEs

Small Business Corporation

SPCSPC

Senior bonds(2yr 8.5 bil., 3yr 36 bil.)

Credit EnhancementBy Korea Housing Bank

(10 bil.)

Junior bonds(27.5 bil.)

Corp. bonds

(72billion won)

Asset sales

\

InvestorRepurchased by Small

Business Corporation

Introduction

Stage

(’99~’00)

Financial Restructuring &

Securitization of NPLs

Developing Stage

(‘00-’01)

Financing tools for

companies

to overcome flight-to-quality

(maturity concentration)

problems

Maturing Stage

(’02~’04)

Deepening of

ABS market

Financing tools for SMEs,

credit card companies

mortgage, student loans,

Future Cash Flow

Securitization & others

Evolution of ABS Market in Korea

0.5

28.6

8.7

1.9

6.9

0.2

4

20.622.2

0.92.5

1

4.6 5.34.6

13.1

19.7

10.5

12.614.4

0.6 1.2 0.9 0.6 0.9 0.8

3 3.5

9.9 9.6

111

13.4%

25.4%

56.6%

41.2%

8.3%

3.2%

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10

15

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25

30

35

1999 2000 2001 2002 2003 2004

0%

20%

40%

60%

80%

100%

Securities Card loans Lease, Auto loans

Accountable receivables Real-estate Ratio of Credit loans

KRW trillion

Bonds

Lessons from Korean Experiences

USA : Mortgage Lease/Cards Junk Bonds/CBOs Future Cash Flows

Korea: NPLs CBOs Cards Future Cash Flows

Securitization can be an effective policy tool for overcoming credit crunch problems (or credit quality gap)

Public sectors can facilitate securitization

Securitization evolves as market need arises





Credit shock

Market ImpactMassive Corp. Bond Issuance to Refi Bank Debts (From Banks to ITCs)


Market ImpactMTM accounting for ITCs








Rapid Pick-Up of ABS Markets

Credit shock


Credit Card Industry in KoreaCredit Card Industry in Korea

◇ Untapped new market of consumer finance

• Before 1998, individuals had a lower pecking order in the credit market

• After 1998, business entities stopped financing new investment

• Every financial company in Korea began to enter consumer loan market

◇ In the beginning it was lucrative!

Average lending rate of bank: 6~7% per annum

Cash advance fee: over 20% per annum Financing cost of credit card companies:

6~7% per annum

◇ Especially Credit card companies with less financial market experience which are subsidiary of business conglomerate used market share maximization strategy.

◇ Credit card companies financed its lending by issuing corporate bonds and by securitizing credit card receivables.

Cards Issued (thousands)

Cards per economically

active individual

1990 10,384 0.6

1995 33,278 1.6

2000 57,881 2.6

2002 104,807 4.6

2005.6 82,765 3.4

Growth of Consumer Finance

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Year

% o

ut o

f tot

al c

redi

t

Beginning of Crisis in Credit Card Industry in KoreaBeginning of Crisis in Credit Card Industry in Korea

◇ SK Global event (February 2003) • Family owner was arrested as a suspect of accounting fraud • Investors of Money Market Fund which invested in debt instruments issued by SK Global suffered loss.

◇ Investors getting more sensitive about over-issued credit card companies’ bonds • Increasing concern about credit card companies’ loss

◇ Past due ratio (excluding rescheduled debt) increased

◇ Investors began to redeem investment trust funds in the fear of loss

◇ Investment trust companies had to sell or stop rolling over credit card bonds

◇ Other institutional investors were deeply concerned about their investment positions in credit card bonds

Market Situation

End of 2001 End of 2002 End of 2003

2.0% 5.9% 13.6%

Government Measures in 2003Government Measures in 2003

• Initiatives by the Government in April 2003

Rolling over maturing debt securities issued by credit card companies Funding a pool to support refinancing credit card companies’ debt securities held by investment

trust companies Large shareholders joining in new capital raising

(8 credit card companies with their own plans to raise capital in the amount of U$ 80m~U$ 400m)

Credit card companies reconstructing cost structure and asset management

• Strengthening guidance on sound management

Reintroduction of loan service ratio In calculating past due ratio, liquidated asset should be included In calculating adjusted capital ratio, 20% of liquidated asset should be included in the denominator

• Starting Credit Counseling & Recovery Service (founded in 2003)

1 out of 10 economically active population is registered as insolvent and the number was increasing Increasing personal insolvency not only hurts financial institutions profitability but becomes the

reason of social unrest Financial companies co-founded CCRS to reschedule personal debts and help finding jobs for

troubled people Number of applications for debt rescheduled: 2003: 62,550 → 2004: 287,352

Credit Card Industry after CrisisCredit Card Industry after Crisis

2001 2002 2003 2004 2005.9

Assets+

ABS

60 84 46 30 26

Liabilities+

Financing from ABS

52 75 45 28 23

Net income 2.1 0.2 -8.8 -1.1 0

ROA 5.8 0.4 -21.6 -3.9 0

• Credit card companies are recovering from crisis

• Assets are still shrinking

• Past due ratio (including rescheduled debt) has decreased to 11.9%(Sep 2005) from 28.3%(end of 2003)

• Number of credit card companies has reduced

- Three companies were merged into mother banks

- Six credit companies left on business

(billion U$, %)

Monitoring Systemic RisksMonitoring Systemic Risks

• Concentration Index

• Credit Spread Index

• Market Sentiment Index

• Strengthen credit bureau business

• Create individual credit risk index

Create indices to monitor systemic risks in bond markets

Create indices to monitor individual credit risks

ABS related business guideline ABS related business guideline

• Clarify the role and responsibilities of ABS related party

• Embody device for surveillance among ABS related parties

• Strengthen ABS related disclosure

Market’s self-regulatory guideline for those engaged in ABS business (from ’05.5)

Minimize instability in the ABS market and create an environment favorable to ABS investment

Minimize instability in the ABS market and create an environment favorable to ABS investment

New Asset-Backed Securities: Student Loan Securitization

4

Establishment of Establishment of

Korea Housing Finance CorporationKorea Housing Finance Corporation

• Korea Mortgage Corporation was established as a joint venture with IFC in 1999.

• Establishment of State-run Secondary Mortgage Market Enterprise– Korea Housing Finance Corporation Act enacted in Dec. 2003– KHFC officially established on Mar. 1, 2004– Korean government & Bank of Korea are sole contributors of the capital.– Losses, in excess of reserves, to be covered by the government (KHFC Act)

• Major Lines of Business– Purchases mortgages and issues MBS– Purchases mortgages and Issues MBB (Mortgage-Backed Bond)– Mortgage Portfolio Business (Issuance of MBS or MBB required)– Provides credit lines to lenders to support the origination of mortgages

• Mortgage Securitization Business – As of Jan. 31, 2006

7.6 trillion won of mortgages originated (104,496 mortgages) Currently mortgages are originated by 22 Approved Lenders

9 Approved Lenders started to originate mortgages from Mar. 25, 2004 17 MBS Issuances completed (Total 7.3 trillion won)

The first MBS issuance completed in June, 2004 The first SLBS Issuances completed in Oct. 2005 (517 billion won)

Now preparing the 2nd and 3rd SLBS issuances scheduled to be completed in the coming Apr. and May

MBS Issuance StructureMBS Issuance Structure

Sales of Mortgages

Trust Issuance of MBS

Borrowers

Monthly Repayment of P&I

Servicing Fee

Guarantee Fee

Trustee Fee

Lenders(Seller/Servicer)

KHFC Trust(Trustee: KHFC)

Investors

FSC

MBS P&I Repayment

Mortgages

Registration of Securitization Plan, Transfer/Trust

Guarantee on MBS P&I payment

Existing Subsidized Student LoanExisting Subsidized Student Loan

- Need to lengthen the Repayment Period

- Mismatch in the bank’s Asset-Liability Management

- Government’s excessive burden for subsidization

Major Problems of the old Student Loan Program

- Need to support the cost of living besides the tuition

Short-term deposits vs. Long-term loans with fixed interest rate

- Need to develop stable supply system of student loans Heavily depends on the banks’ discretion or business strategy

Max. 7 years of Repayment Period needs to be lengthened. To mitigate the repayment burden

Annual subsidization increases as the outstanding balance of student loans increases Difficult to increase the government-sponsored student loans

New Government-Guaranteed Student LoanNew Government-Guaranteed Student Loan

Student Loan Securitization– KHFC issues Student Loan-Backed Securities(“SLBS”) backed by

Student Loans purchased from 15 designated Banks

KHFC guarantees SLBS P&I payment

– Student Loans are funded from the Bond Market

– Banks will not hold Student Loans under their balance Sheets

– Banks act as the Servicers once they sell Student Loans to KHFC

Borrower repay P&I through the Banks (Originator/Servicer) Banks get Servicer Fee Income Banks are free from Credit Risk

Student Loan Securitization ProgramStudent Loan Securitization Program

Current Status

– In the 2nd half of 2005, 15 Banks originated student loans and sold them to KHFC for securitization

Origination period : Aug. 12 ~ Sep. 28, 2005 SLBS Issuance : Oct. 25, 2005 (517 billion won)

– Currently 16 banks are originating student loans for securitization Origination period : Feb. 2 ~ Mar. 24, 2006 Targeted volume : 800 billion won (1st half of 2006 only) SLBS Issuance : Apr. & May, 2006 (400 billion won respectively)

Student Loan Securitization(SLBS)Student Loan Securitization(SLBS)

SLBS Issuance Structure

Sales of Student Loans Trust Issuance of SLBS

Borrowers

Monthly Repayment of P&I

Servicing Fee

Guarantee FeeTrustee Fee

Banks(Seller/Servicer)

KHFC Trust(Trustee: KHFC)

Investors

FSC

SLBS P&I Repayment

Student Loans

Registration of Securitization Plan, Transfer/Trust

Guarantee on SLBS P&I paymentStudent Loan

Credit Guarantee Fund

Guarantee

Guarantee Fee

Student Loan Credit Guarantee FundStudent Loan Credit Guarantee Fund

• Specialized Fund for Credit Guarantee

– Korean Government established 「 Student Loan Credit Guarantee Fund 」 On July 18, 2005 To enhance the credit of student loans

By providing 90% Partial Loss Coverage

– Ministry of Education & Human Resources Development directs the Fund KHFC appointed as the Manager of the Fund Borrowers apply for the guarantee through 16 designated Banks which

originate the student loans

– Provided guarantee related to the origination of 522 billion won of student loans in the 2nd half of 2005

The Fund plans to provide guarantee to support 1.6 trillion won of student loans in 2006

Targeted Number of Student Loans : 500,000

Bond Market in Korea

Business

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