February 2007 Ministry of Finance and Economy Financial Hub Initiative in Korea.

February 2007

Ministry of Finance and Economy

Financial Hub Initiative in KoreaFinancial Hub Initiative in Korea

Table of Contents

Why Finance?Why Finance?II

1

Strategy for Financial Hub Promotion Strategy for Financial Hub Promotion IIII

Major AccomplishmentsMajor AccomplishmentsIIIIII

Future PlansFuture PlansIVIV

I. Why Finance?

i. Why Finance? (1/3) i. Why Finance? (1/3)

A New Growth Engine for the Korean Economy

1.82.12.32.6

4.24.34.54.7

15.0

13.6

12.3

10.2

0

2

4

6

8

10

12

14

16

'93 '97 '01 '05

Unit: Million

Services

Manufacturing

Agriculture

Employment trend by industry



3.8

5.256.19 6.1

7.92

0

2

4

6

8

10

'85 '90 '95 '00 '05(3Q)

Unit: %

• Increased in Value Added (’00) : 50 billion Dollar• Increased in Production (’00) : 100 billion Dollar• Increased in Employment (’00) : 9 billion employees

• Increased in Value Added (’00) : 50 billion Dollar• Increased in Production (’00) : 100 billion Dollar• Increased in Employment (’00) : 9 billion employees

Financial industry’s contribution to GDP



Services Industry

• U.S : 78.4%(’04)

• G7 : 71.5%(’04)

• OECD : 69.0%(’04)

Services Industry

• U.S : 78.4%(’04)

• G7 : 71.5%(’04)

• OECD : 69.0%(’04)

25.9%

66.3%

7.4%

Services

Manufacturing &Construction

Agriculture

Employment structure (’06)

II. Strategy for

Financial Hub Promotion

Strategic RoadmapStrategic Roadmap

Clear GoalsClear Goals

3-Stage Development Plan


I. Strategy for Financial Hub Promotion (1/4)

2

Clear Goals for Financial Hub Promotion

Volume of bond issuance compared to GDPVolume of non-resident bond issuanceSize of fund market compared to GDPVolume of PEF

Index for globalization of finances*

* (FDI + Volume of Portfolio)/GDP

• Weight of overseas asset management activities

Number of foreign financial companies in Korea

Number of world’s top 50 asset management companies in Korea (Inc. regional headquarters)

Performance Index (e. g.)

AttractionAttraction

of of

financial companiesfinancial companies

AttractionAttraction

of of

financial companiesfinancial companies

Internationalization Internationalization

of of

financial transactionsfinancial transactions

Internationalization Internationalization

of of

financial transactionsfinancial transactions

Growth Growth

ofof

financial marketsfinancial markets

Growth Growth

ofof

financial marketsfinancial markets

3


Creation of solid financial infrastructure

Foreign exchangeliberalization

Foreign exchangeliberalization

Financial systemderegulation

Financial systemderegulation

Financial supervisionrenovation

Financial supervisionrenovation

Business and living environment improvement

Business and living environment improvement

Attraction of foreign financial institutions Attraction of foreign financial institutions Attraction of foreign financial institutions Attraction of foreign financial institutions

< Leading business >

Capital market

- Asset management business - Restructuring market - Private equity fund (PEF)

Capital market

- Asset management business - Restructuring market - Private equity fund (PEF)

< Following business >

Foreign exchange market

Insurance market

Commercial banking

Foreign exchange market

Insurance market

Commercial banking

Development of finance market

Strategic Roadmap

4



( ~ 2007)( ~ 2010)

( ~ 2015)

RegionalRegionalFinancial HubFinancial HubPrimary StagePrimary Stage

NicheNicheFinancial HubFinancial Hub

Establishing Establishing

solid financial solid financial

infrastructureinfrastructure

Establishing Establishing

solid financial solid financial

infrastructureinfrastructure

Specializing inSpecializing in

asset managementasset management

businessbusiness

Specializing inSpecializing in

asset managementasset management

businessbusiness

Growing into Growing into

a financial huba financial hub

in Asiain Asia

Growing into Growing into

a financial huba financial hub

in Asiain Asia

5


III. Major Accomplishments

i. Reform Measures for Solid Financial Infrastructure(1/4)

• Eliminate the lingering restrictions on capital account transactionEliminate the lingering restrictions on capital account transaction * Abolish capital account transaction permission system (Jan. 2006)* Abolish capital account transaction permission system (Jan. 2006)

• Accelerate the timetable for the complete liberalizationAccelerate the timetable for the complete liberalization - by year 2011 by year 2009- by year 2011 by year 2009

• Eliminate the lingering restrictions on capital account transactionEliminate the lingering restrictions on capital account transaction * Abolish capital account transaction permission system (Jan. 2006)* Abolish capital account transaction permission system (Jan. 2006)

• Accelerate the timetable for the complete liberalizationAccelerate the timetable for the complete liberalization - by year 2011 by year 2009- by year 2011 by year 2009

Liberalization of Foreign Exchange Market

33rdrd Phase Phase(’08~’09)(’08~’09)11stst Phase Phase

(’02~’05)(’02~’05)22ndnd Phase Phase

(’06~’07)(’06~’07)

Red-tapeRed-tape

reduction reduction

Red-tapeRed-tape

reduction reduction GradualGradual

deregulationderegulation

GradualGradual

deregulationderegulation

Complete liberalizationComplete liberalization

except for except for

safety measuressafety measures

Complete liberalizationComplete liberalization

except for except for

safety measuressafety measures

FX Liberalization PlanFX Liberalization Plan

7

““Negative List System” Negative List System” ““Negative List System” Negative List System”

• Securities and Exchange Act• Futures Trading Act• Act on Business of Operating Indirect Investment & Assets• Trust Business Act • Merchant Banks Act • Corporate Restructuring Investment Companies Act • Specialized Credit Financial Business Act

• Securities and Exchange Act• Futures Trading Act• Act on Business of Operating Indirect Investment & Assets• Trust Business Act • Merchant Banks Act • Corporate Restructuring Investment Companies Act • Specialized Credit Financial Business Act

““Consolidated Consolidated Capital Market Act”Capital Market Act”

““Consolidated Consolidated Capital Market Act”Capital Market Act”

FutureFuture

Positive List System Positive List System

PresentPresent


Introduction of the Consolidated Capital Market Act

8


• Communication channel btw government & market participants (e.g. EUCCK, Amcham, FBG, foreign embassies in Korea etc.)

• In-depth door to door interviews on foreign and domestic financial companies• 48 finance related laws were translated in English

• One-stop grievance handling

• Communication channel btw government & market participants (e.g. EUCCK, Amcham, FBG, foreign embassies in Korea etc.)

• In-depth door to door interviews on foreign and domestic financial companies• 48 finance related laws were translated in English

• One-stop grievance handling

• Introduce no-action letter system (Jul. 2005)

• Disclose supervision manual (Aug. 2005)

• Strengthen remedy for violation of private right (Aug. 2005)

• Introduce no-action letter system (Jul. 2005)

• Disclose supervision manual (Aug. 2005)

• Strengthen remedy for violation of private right (Aug. 2005)

Launch Launch 「「 fn HUB Koreafn HUB Korea 」」 (Jan. 2006)(Jan. 2006)

Setup more Setup more Reasonable Financial Supervision SystemReasonable Financial Supervision System

Establishment of Market-Friendly System

9


• • Survey on statistical status of financial professionals & recruiting plan in financial institutions (Sep. 2006)

- Publish annual reports of financial skills availability starting from year 2006

• Survey on statistical status of financial professionals & recruiting plan in financial institutions (Sep. 2006)

- Publish annual reports of financial skills availability starting from year 2006

• Attract renowned scholars through active recruitment - Open lecture series of eminent faculty from abroad (Sep. 2006) - Promote to recruit world’s top 100 research scholars in finance

• Construct relationship with world renowned institution - KAIST-Reuters (Oct. 2006), KAIST-KDB (Mar. 2006)

• Attract renowned scholars through active recruitment - Open lecture series of eminent faculty from abroad (Sep. 2006) - Promote to recruit world’s top 100 research scholars in finance

• Construct relationship with world renowned institution - KAIST-Reuters (Oct. 2006), KAIST-KDB (Mar. 2006)

LaunchLaunch 「「 Financial Skills Network CenterFinancial Skills Network Center 」」 (Jun. 2006)(Jun. 2006)

OpenOpen 「「 Graduate School of Finance Graduate School of Finance 」」 at KAIST at KAIST (Mar.(Mar. 2006)2006)

Build-up of Institutes to develop Finance Professionals

10

ii. Improvements to enhance Competitiveness (1/4)

• Establish ‘Consolidated Stock Exchange’ (KRX) (Jan. 2005)

• Complete restructuring on investment

trust companies (May 2005)

• Establish ‘Consolidated Stock Exchange’ (KRX) (Jan. 2005)

• Complete restructuring on investment

trust companies (May 2005)

Build Market Infrastructure

Increase Demand for

Assets under

Management

• Introduce retirement pension (Dec. 2005)

• Increase outsourcing ratio of pension funds * 3.3%(’03) 8.7%(’04) 10.9%(’05)

Relax

Related

Regulation

s

• Lighten investment limit for ‘fund of fund’ * Ratio limit : 50% 100%

• Reduce the minimum capital requirement

for asset management companies * Capital requirements : 10bn won 3bn won

Asset Management Market

13

ii. Improvements to enhance Competitiveness(2/4)

• Issue 20 yr. government bonds successfully

- Monthly issue 550 bn Won from January 2006

IncreaseIssuance ofLong-Term

Bonds

Internationalize

Bond

Market

• Reform of bond issuance procedure for foreign investors’ easier access to the market (e.g. Permit the international accounting standards & American accounting standards (Dec. 2004))

• Issuance of Kimchi bonds worth of $300 mn by Bear Stearns (Jun. 2006)

• Issuance of Arirang bonds worth of $ 500 mn (Jan. 2007)

Bond Market

InnovateMarket

Infrastructure

• Create environment for foreign credit rating

• Ease agencies’ entry into domestic market (Jul. 2006)

- Requirement of the number of professionals : 30 20

14


Restructuring Market

15

• Amend KAMCO act and allow investment of overseas

non-performing assets (Feb. 2006)

• Collect information of restructuring markets in Northeast Asia

• Amend KAMCO act and allow investment of overseas

non-performing assets (Feb. 2006)

• Collect information of restructuring markets in Northeast Asia

• Introduce PEF through ‘Indirect Investment Asset

Management Business Act’ (Apr. 2004)

• Broaden range of investors and increase flexibilities in investment (Jun. 2006)

- Permit the investment of venture capitals

- Lighten requirements for SPC shareholders

• Introduce PEF through ‘Indirect Investment Asset

Management Business Act’ (Apr. 2004)

• Broaden range of investors and increase flexibilities in investment (Jun. 2006)

- Permit the investment of venture capitals

- Lighten requirements for SPC shareholders


Build Infrastructure for Asset ManagementBuild Infrastructure for Asset Management

- Establish IT, risk management & evaluation system (Jul. 2006)

Build Infrastructure for Asset ManagementBuild Infrastructure for Asset Management

- Establish IT, risk management & evaluation system (Jul. 2006)

Establishment Of KIC (Jun. 2005)

Build Mid-Long Term Investment Policy Build Mid-Long Term Investment Policy (Sep. 2006)

- Build investment manual (e.g. investment principle, investment asset group)

Build Mid-Long Term Investment Policy Build Mid-Long Term Investment Policy (Sep. 2006)

- Build investment manual (e.g. investment principle, investment asset group)

Finalize Asset Trust ContractFinalize Asset Trust Contract - Bank of Korea : $ 17 bn (Jun. 2006)

- Ministry of Finance and Economy : $ 3 bn (Sep. 2006)

Finalize Asset Trust ContractFinalize Asset Trust Contract - Bank of Korea : $ 17 bn (Jun. 2006)

- Ministry of Finance and Economy : $ 3 bn (Sep. 2006)

Start InvestmentStart Investment

- Invest $1 bn through bond passive index (Nov. 2006)

Start InvestmentStart Investment

- Invest $1 bn through bond passive index (Nov. 2006)

16

95 % Increase in the last 3 years.

Total Market Capitalization

Qualitative changes

iii. Market Performance by Sector (1/5)

Stock Market

723

1,568

357

0

250

500

750

1,000

USD billion

429

836

’04 ’05 ’06.11 Hong Kong(’06.11)

Singapore(’06.11)

• Revaluation on the Korean Market• Increase of investment pool (e.g. Installment funds)

• Share of institution investors

*15.58 % (’03) 18.56%(’05)• Longer investment horizon

17

Bond Market

Steady annual increase

Issue 20 yr. treasury bonds

successfully

Outstanding amount of Issued Bonds


765.1838

0

250

500

750

1,000

USD billion

673.5

’04 ’05 ’07.1

18

Almost doubled in only 3 yrs since 2004

Daily Trading Volume of Foreign Exchange

USD billion


Foreign Exchange Market

Hong Kong (’04)

Singapore (’04)

22.3

102.0125.0

0

50

100

150

18.6

32.0

’04 ’05 ’06

19

Asset Management Market

No. of foreign asset mgt. companies in Korea : 6(’02) 14(’06)

Assets Under Management Pension Funds Operation


179.2

201.4259.7

0

100

200

300

USD billion

121.1

’03 ’04 ’05 ’06

0

100

200

300

400

USD billion

298.9315.9

378.9

172.0

’03 ’04 ’05 ’06(P)

20


Derivatives Market

Transaction Volume

18.0

38.0

0

10

20

30

40

USD Trillion/yr

25.7

’03 ’04 ‘05

Trading Volume

• KOSPI200 Futures : 4th in the World

* 1.10(’03) 1.92(’05)

• KOSPI200 Options : 1st in the World

* 13.59(’03) 30.33(’05)

21


Introduced in 2004

20 PEFs established (as of Nov. 2006)

PEF MarketPEF Market

Major vehicles• CRC, CRF, CRV, KAMCO

KAMCO play a critical role in the NPL market

Restructuring MarketRestructuring Market

NPL acquired(USD bn.)

NPL acquired(USD bn.)

NPL resolved(USD bn.)

NPL resolved(USD bn.)

39.7 39.7

30.2 30.2

Contracted (USD bn.)

Contracted (USD bn.)

4.9 4.9

Invested (USD bn.) Invested (USD bn.)

1.08 1.08

22

25

Financial Industry Status by Sector Financial Industry Status by Sector (end of 2006)(end of 2006)

Banking Securities Insurance Asset Mgt.

Total 18 54 51 49

Domestic 15 32 30 35

Foreign*3

22 21 14

* Criterion for foreign financial company : Over 50% share + the right of management

38

(Branch)

(Unit : No.)

III. Future Plans

i. Improvements of Financial Infrastructure(1/2)

Enact the ‘Enact the ‘Consolidated Capital Market Act’Consolidated Capital Market Act’

• Wait for the enactment by the National Assembly

Accelerate Comprehensive Financial DeregulationAccelerate Comprehensive Financial Deregulation

• Third round ‘Zero-Base Deregulation’ (40 Laws, 639 Tasks)

• Focus on 4 major function - Area of focus : business operation, corporate finance, consumer

protection, finance sanction

27

i. Improvements of Financial Infrastructure (2/2)

Innovate the Financial Supervisory System ContinuouslyInnovate the Financial Supervisory System Continuously• Encourage the use of no-action letter system

• Improve regulatory regime under the proposed ‘Consolidated Capital Market Act’

Execute Foreign Exchange Market LiberalizationExecute Foreign Exchange Market Liberalization

• Facilitate the rescheduled FX liberalization

• Promote internationalization of Korean Won, vitalize overseas investment

• Establish legal base for the ‘Financial Hub Initiative’

• Clarify the principle of enhancing transparency & accelerating competition in the financial market

Enact the ‘Financial Hub Promotion Act’ Enact the ‘Financial Hub Promotion Act’

28

ii. Development of Financial Markets(1/2)

• Promote competition in asset management business

• Increase outsourcing ratio of pension funds

• Activate retirement pension

• Promote competition in asset management business

• Increase outsourcing ratio of pension funds

• Activate retirement pension

AssetManageme

ntMarket

PEFMarket

• Increase the autonomy of PEF operation

• Attract more participants in PEF market (e.g. Venture capitals, insurance companies)

Investment

Banking

· Enlarge the size of securities companies

· Develop models for Korean investment

banking services

29

ii. Development of Financial Markets(2/2)

• Enlarge the issuance of long-term bonds

continuously

• Attract more foreign investors into the Korean bond

market (e.g. Arirang Bond)

• Enlarge the issuance of long-term bonds

continuously

• Attract more foreign investors into the Korean bond

market (e.g. Arirang Bond)

Bond

Market

DerivativeMarket

• Ease regulation on OTC derivative products * Positive system negative system

• Diversify the listed derivative products

RestructuringMarket

· Build information portal of restructuring markets

in Northeast Asia

· Foster leading market participants of the Northeast

Asian market

30

iii. Leading the Way in Northeast Asia

Attracting Foreign

Financial Institutions

• Strengthen the role of KIC

• Establish the International Financial Services

Center (IFSC)

• Promote foreign companies’ listing in KRX

• Have strategic alliances with overseas

Globalization of

Korea Exchange

Active Role in

Regional Finance Infra Project

• Export Korean financial IT / financial system

• Channel various types of funds (e.g. e-Asia Fund* (ADB), ODA)

31

New Business Opportunities

New Growth Engine for the

21st century

Financial Hub Strategy

Korean Economy Foreign Investors

Prosperity in the Future

33

February 2007 Ministry of Finance and Economy Financial Hub Initiative in Korea.

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Transcript of February 2007 Ministry of Finance and Economy Financial Hub Initiative in Korea.