South Korea banking

113
A GLOBAL COUNTRY STUDY AND REPORT ON BANKING INDUSTRYSubmitted to C K SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION Under Gujarat Technology University UNDER THE GUIDANCE OF Mr. Nirav Majmudar (Asso.Professor, CKSVIM, Vadodara) Submitted by: Abhay Dhami- 73 Rashmi Nihalani- 74 Vihangini Shah- 75 Krutika Mohile- 76 Harshil Modi- 77 Maulik Shah- 78 M.B.A –SEMESTER IV C K Shah Vijapurwala Institute of Management M.B.A PROGRAMME Affiliated to Gujarat Technological University

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Transcript of South Korea banking

Page 1: South Korea banking

A

GLOBAL COUNTRY STUDY AND REPORT

ON

“BANKING INDUSTRY”

Submitted to

C K SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

Under

Gujarat Technology University

UNDER THE GUIDANCE OF

Mr. Nirav Majmudar

(Asso.Professor, CKSVIM, Vadodara)

Submitted by:

Abhay Dhami- 73

Rashmi Nihalani- 74

Vihangini Shah- 75

Krutika Mohile- 76

Harshil Modi- 77

Maulik Shah- 78

M.B.A –SEMESTER IV

C K Shah Vijapurwala Institute of Management

M.B.A PROGRAMME

Affiliated to Gujarat Technological University

Ahmedabad

April 2012

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DECLARATION

We, Abhay Dhami, Rashmi Nihalani, Vihangini Shah, Krutika

Mohile, Harshil Shah, Maulik Shah hereby declare that the report for Global/

Country Study Report entitled “Banking Industry ” in South Korea and

India is a result of our own work and our indebtedness to other work

publications, references, if any, have been duly acknowledged.

Abhay Dhami -

Rashmi Nihalani -

Vihangini Shah -

Krutika Mohile -

Harshil Modi -

Maulik Shah -

Place :

Date :

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PREFACE

One can’t swim only by reading a book on swimming. It must require a

“practice”. Practice makes man perfect. Theory makes him thoughtful. So

theoretical knowledge is only a half way in study network. If theoretical

knowledge aspects are planned in a better way give faithful results, so

theoretical knowledge should be supplemented by practical experience.

The study of a country can give you a chance of learning the different aspect

of the country which will be benefited to our learning about the country and its

future potential sector which can be benefited to start a new business or to

expand the existing business. And it will also benefit for a company to see

about the future potential of their related area.

The study of comparative analysis of the Banking industry between India and

South Korea has considered different areas of the infrastructure industry

which express the information about the facilities and recent trends in banking

industry.

In all it was great learning experience for us which will help us in our future

work areas.

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1) Economic Overview of the South Korea Country

1.1 Demographic Profile of the South Korea

The demographic features of the population of South Korea, including

population density, ethnicity, education level, health of the populace,

economic status, religious affiliations and other aspects of the population.

Background

Although a variety of different Asian peoples had migrated to the Korean

Peninsula in past centuries, very few have remained permanently, so by 1990

both South Korea and North Korea were among the world's most ethnically

homogeneous nations. The number of indigenous minorities was negligible. In

South Korea, people of foreign origin, including Chinese, Japanese, and

Westerners, Southeast Asians, South Asians and others was a small

percentage of the population whose residence was generally temporary.

Koreans tend to equate nationality or citizenship with membership in a single,

homogeneous ethnic group or "race" (minjok, in Korean). A common language

and culture also are viewed as important elements in Korean identity. Until

recently, the idea of multiracial or multiethnic nations, like the United States or

India, struck many Koreans as odd or even contradictory.

Languages

The Korean language is spoken by the vast majority of the population. English

is widely taught in primary school, middle school and high school, and

continues to be taught in higher education. The Japanese language, a legacy

of the Japanese colonial rule of Korea and an official language until 1945, is

not used but has given some loan words to the Korean language, especially

for the older generation.

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Age structure

0–14 years: 16.8% (male 4,278,581/female 3,887,516)

15–64 years: 72.3% (male 17,897,053/female 17,196,840)

65 years and over: 10.8% (male 2,104,589/female 3,144,393) (2010 est.)

Growth

· Birth rate: 9.8 births/1,000 population (2011 est.)

· Total fertility rate: 1.28 children born/woman (2011 est.)

· Death rate: 5.4 deaths/1,000 population (2011 est.)

· Infant mortality rate: 4.24 deaths/1,000 live births (2010 est.)

· Net migration rate: 0 migrant(s)/1,000 populations (2010 est.)

Sex ratio

· at birth: 1.07 male(s)/female

· under 15 years: 1.075 male(s)/female

· 15–64 years: 1.038 male(s)/female

· 65 years and over: 0.69 male(s)/female

· Total population: 0.99 male(s)/female (2011 est.)

Life expectancy

· total population: 81 years

· male: 75.56 years

· Female: 82.28 years (2010 est.)

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Religions

· Nonreligious: 49.3%

· Other: 1.3%

Literacy

· Definition: age 15 and over can read and write

· total population: 97.9%

· male: 99.2%

· female: 96.6% (2002)

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1.2 Economic overview of South Korea

South Korea is the 12th largest economy in the world, with a GDP (PPP) of

1.459 trillion in 2010. South Korea is one of the fastest growing economies

from the 1960s to 1990s, and was termed as one of the Asian Tigers, along

with Hong Kong, Singapore and Taiwan.

South Korea's economic growth relied heavily on its exports, due to a lack of

natural resources, and small domestic consumer market. This also makes

them the 7th largest exporter and 10th largest importer in the world. The

South Korean economy has also grown from one which is labor-intensive, to

one which is more capital and technology-orientated.

South Korea's growing economy is also one of the few countries which

avoided recession during the 2008 financial crisis. However, the country's

progressive economic growth could be impeded by its continued tension with

North Korea. Economic ties between North and South Korea were established

in 1988, and trade volume rose to $1.82 billion in 2008, making South Korea

the second largest trading partner of North Korea, after China. But constant

conflicts between the two nations have severed the economic ties between

them.

South Korea is also a member of world organizations including the G-20,

APEC, OECD and WTO. It has also signed free trade agreements with other

countries, with the most important free trade agreement signed with the US in

2007, the Korea-US Free Trade Agreement (KORUS FTA) which removed all

trade and investment barriers between 2 countries. This also made US their

second largest export market.

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Economic Geography

South Korea has a land area of 96,920 square km, with 16.58 percent of

arable land. The country's main agricultural crops are rice and barley. Other

product supplied by South Korea includes vegetables, fruits, root crops, cattle,

pigs, chicken, milk, eggs and fish. South Korea also enjoys few natural

resources such as coal, tungsten, graphite, molybdenum, lead and

hydropower potential.

Asia has become the growth center of the world economy in recent years.

Within the region, India and South Korea are the third and fourth largest

economies after China and Japan. Though the Asian growth story mainly

revolves around India and China, South Korea has remained a key player for

these countries as one of their major trading and investment partners. South

Korea adopted outward-oriented economic policies with the beginning of its

first five-year economic development plan in 1962 which resulted in high

growth and the integration of the Korean economy with the rest of the world.

Subsequently, high and consistent economic growth made South Korea one

of the high-income economies in Asia. Korea is still growing at a faster rate

compared to other developed economies.

India, on the other hand, adopted an import-substitution policy since its

independence until the early 1990s. Since 1991, India has introduced wide-

ranging economic policy reforms and is moving towards a market-driven

economy. This has resulted 9oin consistent high economic growth over the

last one and a half decades, making India the 10th largest economy in the

world. At present, India is the second fastest growing economy in the world.

Both India and Korea have been getting integrated with the world economy,

enhancing their role in the international economic order.

India and Korea have shared a close relationship since the establishment of

formal diplomatic ties in 1973. The last three and a half decades have seen

high-level exchanges and the signing of several crucial agreements leading to

a continuous strengthening of bilateral economic relations.

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1.3 Overview different economic sector of South Korea

As the world's 12th largest economy with a GDP (PPP) of US$1.459 trillion in

2010, South Korea has experienced huge economic growths from early 1960s

to 1990s. Along with Hong Kong, Singapore and Taiwan, they are termed the

Asian Tigers. Development in the industrial and manufacturing industries

attributes to the growth of South Korea's economy and is the major growth

engine for its export-orientated economy.

Over the years of economic progress, South Korea has transformed its

economy from one which is labor intensive to one which is more capital and

technology-orientated. Today, South Korea boasts as one of the top players in

the electronics, automobile, telecommunication and shipbuilding industries.

South Korea's Industry Sector

South Korea's agriculture contributes only 3 percent of the nation's total

GDP in 2010 and employs 7.3 percent of the country's workforce. The

agriculture in South Korea has shrunk significantly as the nation moves

towards the urbanization and industrialization of the economy. Back in 1987,

agricultural made up 12.3 percent of the nation's total GDP, and employs 21

percent of the workforce.

Rice is the most important agriculture crop of South Korea. It made up 90

percent of the total grain production, and supplies over 40 percent of the

farmers' income. However, rising farmers' wages and land values have made

rice costly to produce.  With 16.58 percent o arable land, South Korea's

agriculture is also responsible for the production of crops such as barley,

vegetables, fruits and production of cattle, pigs, chicken, milk, eggs and fish.

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The industry of South Korea contributes 39.4 percent of the country's

GDP in 2010. The industry and manufacturing industries are the major growth

engine for South Korea during its economic progress in the 1980s. South

Korea's largest industries are electronics, automobiles, telecommunication

and shipbuilding.

Electronics boosted the South Korean economy in the 1980s, by

becoming the world's sixth largest manufacturer of electronic goods such as

color televisions, microwave ovens, radio, watches and personal computers. .

South Korea is also a major manufacturer of semiconductors, with Samsung

Electronics and Nynex Semiconductor the global leaders in the production of

memory chips.

The automotive industry also plays a major role in the South Korean

economy today. It has grown into one of world's largest automobile

producers, coming in 5th after the United States and Germany, with an

estimate of 4.27 million automobile produced a year. Some of South Korea's

international automobile brands include Hyundai, Kia and Renault.

From a slow start of two million subscribers to a current high of 40 million,

mobile telephone is the fastest growing area in telecoms, going beyond the 20

million fixed lines serving a 40 million-strong population. Today, South Korea

also has the highest number of broadband users in the world. The

presence of one of the fastest broadband networks in the world also permits

e-commerce to grow.

South Korea is a global player in the production of ships , with a 50.6

percent share of the global shipbuilding market in 2008. Four of the world's

largest shipbuilding companies are from South Korea: Hyundai Heavy

Industries, Samsung Heavy Industries, Daewoo Shipbuilding & Marine

Engineering and STX Offshore & Shipbuilding. Europe's largest shipbuilder,

STX Europe, is also owned by South Korea.

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Services in South Korea contributes 57.6 percent of the nation's total

GDP and employs 68.4 percent of the workforce.

The government shifts its focus from manufacturing to services in 2009, and

experts predict that the services will be the driving force of South Korea's

economy for the next few years.

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1.4 Overview of Business and trade at international level

South Korean economy and trade – a brief history

In 1945, South Korean economy was mainly agricultural. In the following

decades South Korea developed light industry, consumer products and heavy

industry. South Korean economy was further boosted in 1988, thanks to the

Summer Olympics and in 2002 because of the Football World Cup, hosted in

South Korea and Japan. At the same time the service industry grew

immensely.

At the beginning of the 21st century, South Korea is leader in the IT sector

thanks to the aids received by its government. Leading firms in this sector are

Samsung Electronics and LG Electronics.

As for exports, South Korea has established itself as a main provider of

semiconductors in addition to exporting various IT products. For the future,

the South Korean government is beginning to invest in the robotic industry.

Korean Trade and Business - Seoul & South Korea

South Korean economy is the 11th largest economy in the world and the third

largest in Asia. South Korea’s economical growth in the last 60 years has

been incredible; its GDP has grown from USD 100 in 1963 to over 20,000 in

2007. However, many challenges lie ahead for the South Korean economy, as

some reforms are needed, in order to solve some problems and make South

Korean market more liberalized. Also, the South Korean government is

worried by the increasing diversion of corporate investments to China and

other countries with lower wages. Below we look at trade and business in South

Korea, and the opportunities.

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The main sectors of South Korean economy and trade

The biggest part of South Korean GDP is made up by the service industry

(about 55%), especially department stores, store chains and supermarkets.

The second most important South Korean trade sector, for which this country

is now famous all over the world, is the manufacturing sector (more than 40%

of the country’s GDP). South Korean industries include: the textile and steel

sectors; shipbuilding; car manufacturing and electronics (especially

semiconductors, of which South Korea is the world’s largest producer). Lastly,

agriculture contributes only to a small part of South Korean GDP (about 4%).

The main crop is rice, followed by other cereals, like barley, wheat, corn,

soybeans and by other products such as chili peppers, sweet potatoes,

Chinese cabbage, apples and pears.

South Korean international trade – Import and Export

Import – South Korea imports mainly mineral fuels, electric and mechanical

equipment, iron and steel. South Korea’s main trade partners for imports are

China, Japan, the European Union and the USA.

Export – South Korea’s most important export partners are again China,

Japan, the European Union and the USA, and the products that South Korea

exports are: electric and electronic goods, machinery, vehicles, ship and

boats. For Freight Rates to South Korea RSJ International of the UK organize

freight to and from Korea, to locations around the world. Also interested in

Chinese business and trade?

North and South Korea trade

Recently, in spite of the political disagreements, trade between North and

South Korea has increased and big South Korean companies, such as

Hyundai, started ventures in North Korea.

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1.5 Overview of Industries trade and commerce

The Korean financial industry consists of three groups: (i) a central bank

(BOK); (ii) deposit money banks, including commercial and specialized banks;

and (iii) nonbank financial institutions (NBFIs), which include development,

savings, investment, insurance, and other institutions. The Korea

Development Bank and Export-Import Bank of Korea engage in similar

activities. Using Government funds, foreign capital, or funds raised from the

issue of special debentures, they provide medium- and long-term loans or

credit to key sectors such as (i) the export industry, (ii) parts and components

industry, (iii) high-technology business, and (iv)research and development

projects for developing new technologies.

Claims on central government (annual growth as % of

broad money)

Claims on central government (IFS line 32AN..ZK) include loans to central

government institutions net of deposits.

Country

Name

2006 2007 2008 2009 2010

India 2 1 8 9 5

South Korea 0 -4 3 2 0

Domestic credit provided by banking sector (% of GDP)

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Domestic credit provided by the banking sector includes all credit to various

sectors on a gross basis, with the exception of credit to the central

government, which is net. The banking sector includes monetary authorities

and deposit money banks, as well as other banking institutions where data

are available (including institutions that do not accept transferable deposits

but do incur such liabilities as time and savings deposits).

Examples of other banking institutions are savings and mortgage loan

institutions and building and loan associations.

Country

Name

2006 2007 2008 2009 2010

India 60.9 60.8 68.2 69.4 71.1

South

Korea

96.4 98.4 109.4 109.4 103.2

Bank nonperforming loans to total gross loans (%)

Bank nonperforming loans to total gross loans are the value of nonperforming

loans divided by the total value of the loan portfolio (including nonperforming

loans before the deduction of specific loan-loss provisions). The loan amount

recorded as nonperforming should be the gross value of the loan as recorded

on the balance sheet, not just the amount that is overdue.

Country

Name

2006 2007 2008 2009 2010

India 3.3 2.5 2.3 2.3

South

Korea

0.8 0.7 1.1 1.2 1.5

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Bank capital to assets ratio (%)

Bank capital to assets is the ratio of bank capital and reserves to total assets.

Capital and reserves include funds contributed by owners, retained earnings,

general and special reserves, provisions, and valuation adjustments. Capital

includes tier 1 capital (paid-up shares and common stock), which is a

common feature in all countries' banking systems, and total regulatory capital,

which includes several specified types of subordinated debt instruments that

need not be repaid if the funds are required to maintain minimum capital

levels (these comprise tier 2 and tier 3 capital).

Total assets include all nonfinancial and financial assets.

Country

Name

2006 2007 2008 2009 2010

India 6.6 6.4

South

Korea

9.2 9 8.8 10.9

Exports of goods and services (% of GDP)

Exports of goods and services represent the value of all goods and other

market services provided to the rest of the world. They include the value of

merchandise, freight, insurance, transport, travel, royalties, license fees, and

other services, such as communication, construction, financial, information,

business, personal, and government services. They exclude compensation of

employees and investment income (formerly called factor services) and

transfer payments.

Country

Name

2006 2007 2008 2009 2010

India 21 20 23 20 18

South

Korea

40 42 53 50

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Real interest rate (%)

Real interest rate is the lending interest rate adjusted for inflation as

measured by the GDP deflator.

Country

Name

2006 2007 2008 2009 2010

India 4.5 6.9 6.2 4.3

South

Korea

6.1 4.4 4.1 2.1 1.7

Stocks traded, turnover ratio (%)

Turnover ratio is the total value of shares traded during the period divided by

the average market capitalization for the period. Average market capitalization

is calculated as the average of the end-of-period values for the current period

and the previous period.

Country

Name

2006 2007 2008 2009 2010

India 93.1 84 85.2 119.3 75.6

South

Korea

172.5 201.6 181.2 237.6 168.9

1.6 PESTEL ANALYSIS

Introduction

The country analysis report on South Korea

provides a wide array of analytical inputs to analyze the country’s

performance, and the objective is to help the reader to make business

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decisions and prepare for the future. The report on South Korea analyzes the

political, economic, social, technological, legal and environmental (PESTLE)

structure of South Korea. The report provides a holistic view of South Korea

from historical, current and future perspective. Insightful analysis on critical

current and future issues is presented through detailed SCPT (strengths,

challenges, prospects and threats /risks) analysis for each of the PESTLE

segments. In addition, the PESTLE segments are supplemented with relevant

quantitative data to support trend analysis. The PESTLE country analysis

report series provides an in-depth analysis of 50 major countries.

Features and Benefits

• Understanding gained from the country analysis report on South Korea

can be used to plan business investments or market entry apart from a

holistic view of the country.

• Political section on South Korea provides inputs about the political

system, key figures in the country, and governance indicators.

• Economic section on South Korea outlines the economic story of the

country to provide a balanced assessment on core macro-economic

issues.

• Social section on South Korea enables understanding of customer

demographics through the income distribution, rural-urban

segmentation and centers of affluence, healthcare and educational

scenario in the country.

• Technological section on South Korea provides strategic inputs on

information communications and technology, technological laws and

policies, technological gaps, patents data and relevant laws.

• Legal section on South Korea provides information about the legal

structure, corporate laws, business set-up procedures and the tax

regime.

• Environmental section provides information on environmental policies

in South Korea and the performance in terms of important

environmental indicators.

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Highlights

PESTLE analysis of South Korea identifies issues that affect the country’s

performance through the prism of current strengths (strengths), current

challenges (weaknesses), future prospects (opportunities) and future risks

(threats).

The political landscape discusses the evolution of the political scenario in

South Korea in different periods. The economic, social, foreign and defense

policies are considered in the political landscape section. It also discusses the

performance of the country as per World Bank Governance Indicators.

The economic landscape describes the evolution of the economy of South

Korea in different periods. It also examines the country’s performance in terms

of GDP growth, composition by sector (agriculture, industry and services),

fiscal situation, international investment position, monetary situation, credit

disbursement, banking sector and employment. The economic landscape also

explains the financial system in the country, especially with regard to financial

authorities/regulators.

The social landscape covers the demographics, education and healthcare

scenario in South Korea. The social welfare policies of the government along

with the country’s performance in terms of healthcare, income distribution and

education are also provided.

The technological landscape discusses the structure and policies in terms of

Intellectual property, research & development, technology agreements/pacts;

and policies related to the promotion of technology in South Korea.

The legal landscape examines the structure of the judicial system, legislation

affecting businesses, tax regulations, labor laws, trade regulations and

corporate governance in South Korea.

The environmental landscape in South Korea discusses the environmental

regulations and policies of the country. The performance of the country in

terms of in terms of environmental indicators and impact of environmental

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policies is also examined.

'The 1997–98 regional financial crises led to a short but sharp economic

downturn in 1998, with the economy contracting by around 6.7%. In 1999 and

2000, the economy rebounded strongly on the back of the global recovery and

improved competitiveness resulting from the sharp currency devaluation

during 1997. The strong global outlook, combined with an accommodative

monetary stance and strong consumer spending growth, led to a robust

growth rate of 6.9% in 2002. South Korea's economy grew at a slightly lower

rate of 4.7% in 2004. A supportive policy stance and benign external

conditions helped the economy to grow at 4.1% in 2005. Continued labor

market improvements, a strong employment scenario and increasing labor

productivity increased the country’s growth to about 5% in 2006. The credit

crisis of 2008–09 led to a global economic downturn, which affected South

Korea's export market. Growth dropped to 2.2% in 2008, and the country's

economy barely averted recession by expanding at 0.2% in 2009. The

country’s economy bounced back to register a growth rate of 6.1% in 2010.'

Conclusion

Banking Sector Performance:

Country ROA ROE COST/INCOME

RATIO

NPL/ASSET

RATIO

India 1.0 18.5 72 11

Korea 0.5 10.9 78 20

Meaning of Bank

People need money to meet future expenses on marriage, higher

education .of children, house building and other social functions. These are

heavy expenses, which can be met if some money is saved out of the present

income. Saving of money is also necessary for old age when it may not be

possible for people to work and earn their living.

So for saving money they use to hold money at their home, but it also

involved the risk of loss by theft, robbery and other accidents.

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Thus, people were in need of a place where money could be saved safely and

would be available when required. Banks are such places where people can

deposit their savings with the assurance that they will be able to withdraw

money from the deposits whenever required.

Bank is a lawful organization, which accepts deposits that can be

withdrawn on demand. It also lends money to individuals and business

houses that need it.

Banks give two assurances to the depositors –

a). Safety of deposit, and

b). Withdrawal of deposit, whenever needed

On deposits, banks give interest, which adds to the original amount of deposit.

It is a great incentive to the depositor. It promotes saving habits among the

public.

Bank of Korea

Bank of Korea

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Bank of Korea Signature

Headquarters Jung-gu, Seoul, South Korea

Established June 12, 1950

Governor Choongsoo Kim

Central bank of South Korea

Currency South Korean won

Base borrowing rate 3.00%

(Wiki pidia)

The Bank of Korea (BOK) is the central bank of South Korea and issuer of

South Korean won. It was established on June 12, 1950 at Seoul, South

Korea.

The Bank's primary purpose is price stability. For that, the Bank targets

inflation. The 2010–12 targets are consumer price inflation of 3.0 ± 1%.

History

In the year 1950 under the Bank of Korea Act, The Bank of Korea was

established on June 12.

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To tackle the severe inflation and financial disorder which brought an acute

shortage of resources and the division of the country.

With this situation, discussions regarding the country on establishing a central

bank for the Republic of Korea

Based on this plan, the Bank of Korea Act was passed in May 1950 and the

Bank launched its operations as a central bank on June 12, 1950. It was given

a wide range of functions in relation to monetary & financial policy, bank

supervision, and foreign exchange policy.

Primary Purpose

The primary purpose of the Bank is to pursue price stability.

The central bank to safeguard the value of the money by keeping inflation low.

Because the purchasing power of money depends on prices. When prices

rise, the same amount of money buys less than before

Prices are influenced by various factors such as corporate investment,

household consumption and international prices of raw materials.

For these purpose, the responsibility for price stability is given to central

banks in most countries. The Bank sets and announces an inflation target for

a certain period and strives to meet this target.

Organization

Monetary Policy Committee

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At the top of the Bank of Korea's organization is the Monetary Policy

Committee (Geumnyung Tonghwa Wiwonhoe). The Committee's prime

function is the formulation of monetary and credit policies. More over, the

Committee deliberates and resolves on major matters concerning the

operations of the Bank of Korea.

The Monetary Policy Committee is composed of seven members representing

various groups in the national economy:

1) The Governor, ex-officio;

2) The Senior Deputy Governor, ex-officio;

3) One member recommended by the Minister of Strategy and Finance;

4) One member recommended by the Governor;

5) One member recommended by the Chairman of the Financial Services

Commission;

6) One member recommended by the Chairman of the Korea Chamber of

Commerce & Industry;

7) One member recommended by the Chairman of the Korea Federation of

Banks.

Bank of Korea in Seoul

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The current governor Kwon Hyouk-Se was named to his position in March

2011 after a career of nearly three decades in finance-related positions in the

government.

When the Monetary Policy Committee deems it necessary for the

implementation of monetary and credit policies, the bank of korea request the

FSS to perform an examination of a bank and other financial institutions.

Functions

1. Issuing Banknotes and Coins

The Bank of Korea has the special right to issue banknotes and coins in the

Republic of Korea. Their dimensions, designs and denominations are

determined by the Monetary Policy Committee with Government approval.

The banknotes and coins thus issued have tender within the country for all

transactions, both public and private, without limitation.

The Bank is not required to maintain any prescribed minimum ratio of gold or

foreign exchange against its banknotes and coins issued, nor are any

maximum limit imposed on their issue.

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Currently, there are four different denominations of banknotes in circulation

and we present in following table.

Banknotes Bank

coins

₩1,000 ₩1

₩5,000 ₩5

₩10,000 ₩10

₩50,000 ₩50

₩100

There are 5 Banknotes and Six Bank coins in table. The Bank issued

redesigned ₩5,000 banknotes in January 2006, and redesigned ₩1,000 and

₩10,000 banknotes in January 2007.

2. Formulating and Implementing Monetary and Credit Policy

The Bank conducts monetary policy with an emphasis on price stability,

economic growth, financial asset and market conditions are also being taken

into consideration. The Bank has introduced an inflation targeting regime after

the foreign currency crisis, and changed the monetary aggregate-oriented

operational framework to an interest rate-oriented framework in which its Base

Rate forms its policy rate and operational target. The monetary and credit

policy of bank is implemented through three instruments and they are:

open market operations,

lending and deposit facilities and

Reserve requirements,

.

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3. Acting as the Banker's Bank

The Bank of Korea makes loans to and receives deposits from banks, thus

serving as the banker to the banking sector.

Bank of Korea maintain current account for banking institution and they kept

reserve deposit in these account to clear checks and settle inter bank balance

that arise from use of BOK.

The Bank also conducts credit operations with banks by rediscounting

commercial bills or by extending loans against the maturities of up to one

year.

As they are the lender of last resort, the Bank may extend exceptional loans

to banking in periods of serious emergency.

4. Serving as the Government's Bank

The Government's bank of Korea carries out various kinds of business for the

Government in accordance with the Bank of Korea Act and other relevant

legislation.

The Bank, as the depositary of the Government, handles national revenue

deposits and also accepts deposits from, and makes loans to, government

agencies.

Furthermore, the Bank performs tasks related to the issuing, registering and

redeeming of government securities. In addition, it may provide securities

custodian services for the Government.

The Bank may render credit to the Government as an overdraft on its account

or in other forms, and may directly subscribe to Government bond issues. The

interest rates and other terms on such credits are determined by the Monetary

Policy Committee.

5. Operating and Managing Payment Systems

The Bank of Korea provides three settlements like

Page 28: South Korea banking

Certain settlement services for the public convenience for the safety and

efficiency of the nation's payment as a whole and

Provides settlement facilities to financial intermediaries across their current

accounts with the Bank for final settlement purposes.

Net settlements that arise from major retail payment systems such as bill

clearing and internet banking, payments for delivery versus payment(DVP)

and payment versus payment(PVP) are made through the current accounts

with the Bank.

6. Managing Official Foreign Exchange Reserves

The Bank of Korea holds and manages Korea's official foreign exchange

reserves. Its principal objectives in their management are to safeguard the

value of the reserves and to meet the nation's demand for foreign exchange.

The Bank makes an effort to stabilize the FX market in consultation with the

Government. While the Bank lets the exchange rate be freely determined by

economic fundamentals as well as demand and supply of foreign exchanges

in the market.

Furthermore the Bank acts as an agent for the Government in managing the

Foreign Exchange Stabilization Fund, with the object of stabilizing the foreign

exchange market.

7. Monitoring the Financial System and Assessing Its Stability

The Bank of Korea monitors the financial system and assesses its stability. It

reviews domestic and overseas economic conditions, analyzes the financial

market environment and examines the debt servicing capacity of the

household and business sectors to identify potential risk factors in the

financial sector and to prevent them causing financial system unrest.

The Bank also the managed the status of financial institutions and assesses

their soundness, based upon information collected from reports and surveys

on them, while if necessary conducting joint examinations of these institutions

with the Financial Supervisory Service.

Page 29: South Korea banking

In addition, the Bank publishes Financial Stability Report, which includes an

analysis of the current status and potential risks of the Korean financial

system and an overall assessment of its stability.

8. Carrying out Economic Education

The Bank of Korea undertakes diverse activities to boost public awareness

about the Bank and Korean economy like,

Bank conducts economic education activities for youths, headed up by the

'Economic Lecture for School' programs. It also conducts economic lectures

on request for universities, the military and police services, and non-

government organizations.

The Bank also runs a weekly 'BOK Friday Class' program for the general

public. In addition, it holds an annual 'Monetary Policy Challenge' for college

students to promote greater understanding of its role in formulating and

implementing monetary policy.

Further, the Bank has operated a special website providing online economic

education since September 2006. The website is composed of three sub-sites

for children, youths and adults.

List of Banks in South Korea

Central Bank (Bank of Korea)

Page 30: South Korea banking

Types of Accounts:

There are several different types of bank accounts available to citizens and

foreigners alike. Most accounts do not require a minimum balance nor do they

charge any fees to maintain one.

Savings

These accounts work the same in South Korea as in most other countries.

The client deposits money at the rate he/she desires and the bank offers

interest as an incentive to save. Generally, the longer the term of commitment

the higher the interest rate will be. For shorter-term accounts, the interest

rates are fairly low for savings accounts (about 2%-4%).

Time Deposit

A time deposit account works more like a checking account. Some banks do

offer interest on time deposits, but they are generally lower than savings

accounts.

Local BankSpecial BankNationwide Banks

KB Financial Group

Kookmin Bank

Shinhan Financial

Group

Shinhan Bank

Hana Financial Group

Hana Bank

Korea Exchange Group

Woori Bank

Korea Development

Bank

Industrial Bank of

Korea

National Federation of

Fisheries Cooperatives

National Agricultural

Cooperative Federation

Export – Import Bank

of Korea

Woori Finance Holdings

Co. Ltd

Gwangju Bank (034)

Kyeongnam Bank(039)

Shinhan Financial

Group

Jeju Bank (035)

DGB Financial Group

Daegu Bank

BS Financial Group

Page 31: South Korea banking

Installment

This account requires the client to make monthly installments/payments to the

bank for interest. At maturity, the client will have made a profit. This works like

a Certificate of Deposit, except the money does not have to be paid up front

but in monthly deposits.

Within a couple weeks of signing up for an account you will receive a

bankbook to record your transactions and a bank card. The bank card is

strictly an ATM card to withdraw money from any ATM machine. It cannot be

used to charge purchases to your account.

Services, Fees & Interest

The beauty about most Korean bank accounts is the lack of service fees that

they charge. So don’t get sucked into paying extra fees because it is likely

that you won’t have to anywhere else.

If you would like to make some interest on your account, the best route to take

would be a savings account or an installment account. Interest is generally

between 2% and 4% and can be paid at varying periods of time (annually,

semi-annually, monthly, etc).

Depending on which bank you sign up with, you may be offered tax benefits.

Rates vary between banks and types of accounts. For example, Korean

Exchange Bank charges 10.5% for taxes on a Time Deposit account.

Credit Cards

International credit cards (American Express, Diners Club, MasterCard and

Visa) can pretty much be used anywhere. However, only some ATM’s will

accept foreign credit/debit cards (look for machines correlated with Cirrus,

Star, Interlink, Plus, etc). The bank card issued by your bank is not a

credit/debit card, but an ATM card. It can only be used to withdraw cash from

bank ATM machines. ATM machines are out of service after 11:00PM so plan

Page 32: South Korea banking

accordingly when withdrawing cash.

The Korea Travel Card (KTC)

This is a multipurpose, pre-paid travel card sold by the Korean National

Tourism Office, Shinhan Card and the Shinhan Bank, only to foreign tourists

or residents. This card provides discounts on currency charges, international

and national calls and provides free travel insurance. The card can be bought

in denominations of KRW 100,000, 200,000, 300,000, and 500,000 or in a

customized amount between KRW 100.000 and 500,000. Direct debits & bank

transfers

Sending Money Home

Koreans want you to spend your money in their country and therefore may put

restrictions on the amount of money you can transfer out. However, it is your

money and there are plenty of resources that allow you to send it home if you

wish. Your local bank and other well-known companies such as Western

Union and Money Gram are located all throughout Korea to provide the

services that you need.

Most banks offer services to transfer funds internationally for a small service

fee (your home bank may also charge a fee to receive the money). However,

many banks put a limit on the amount of money you can transfer.

It is essential that Foreigner bring his passport with them while transferring

money because it is procedure for many banks to stamp it each time. Some

institutions have recently established online banking services where you can

do things like transfer money from the convenience of your computer. Since

you are charged by the Korean bank and your home bank each time you

transfer money, it is wise to send larger amounts of money fewer times.

Choosing a bank

Most banks in Korea offer the same services for the same price, your choice

should depend more on other factors. If you plan to send most of your money

home, you should find a bank that has little or no restrictions on the amount

you can transfer. A transfer should take no longer than a couple days to a

week to arrive to your other account.

Page 33: South Korea banking

The Bank of Korea

General Features

The Bank of Korea was founded on June 12, 1950 under the Bank of Korea

Act. The Bank was originally established with a capital of 1.5 billion won, all of

which was subscribed by the Government, but the revision of the Bank of

Korea Act in 1962 made the Bank a special juridical person having no capital.

The primary purpose of the Bank, as prescribed by the Act, is the pursuit of

price stability. The Bank sets an inflation target in consultation with the

Government and draws up and publishes an operational plan for monetary

policy.

The Bank performs the typical functions of a central bank: issuing bank notes

and coins, formulating and implementing monetary and credit policy, serving

Page 34: South Korea banking

as the banker's bank, and the Government's bank. In addition, the Bank of

Korea undertakes overall management and surveillance of the payment and

settlement systems, and manages the nation's foreign exchange reserves. It

also monitors the financial system and assesses its stability.

Policy Objectives

The Bank of Korea Act provides that the sole purpose of the Bank is to

contribute to the sound development of the national economy by pursuing

price stability through the formulation and implementation of efficient

monetary and credit policies. Since 1998, the Bank of Korea has employed

inflation targeting, and set a target in consultation with the government.

Recently, following the global financial crisis, the Bank of Korea has placed

greater emphasis on heightening the stability of the financial system. This has

involved vigilant monitoring and the preemptive supply of funds to troubled

sectors. Notably, in the latter half of 2008, the Bank of Korea actively supplied

liquidity amounting to 19.5 trillion won in order to handle the credit crunch in

the domestic financial market, after Lehman Brothers' collapse. In addition,

the Bank publishes Financial Stability Report and oversees the nation's

payment and settlement systems to promote their safety and efficiency.

Organization

The Bank of Korea's organization consists of the Monetary Policy Committee,

the supreme policy-making body; the executive, which carries out the policies

formulated by the Monetary Policy Committee; and the Auditor.

The Monetary Policy Committee as the policy decision-making body, has the

right to deliberate and resolve on major matters concerning monetary and

credit policy and the operations of the Bank of Korea.

The Monetary Policy Committee is composed of seven members representing

various groups in the national economy, and includes the Governor and the

Page 35: South Korea banking

Senior Deputy Governor of the Bank as ex officio members. The members are

appointed by the President for four-year terms except the Senior Deputy

Governor whose term is three years. All members serve on a full-time basis

and no member may be discharged from office against his or her will. The

Governor serves concurrently as the Chairman of the Committee.

The Committee generally convenes on the Thursdays of the second and

fourth weeks of each month and holds extraordinary meetings as frequently

as needed. Monetary policy is resolved and announced on the Thursday of

the second week of every month. The minutes of each Committee meeting

are announced in the Bank's web-site on the first Tuesday after six weeks

have passed from a meeting.

Resolutions at a Monetary Policy Committee meeting are adopted by simple

majority when there are at least five members present. Any member may

submit a proposal with the concurrence of at least one other member. The

Chairman, however, can submit a proposal on his or her own motion.

QUESTIONS INDIA SOUTH KOREA

Decide the Type of

Bank Account you

want to Open

There are several types

of bank accounts such

as Saving Account,

Recurring Account,

Fixed Deposit Account,

Current Account and

joint account. So a

decision regarding the

type of account to be

opened must be taken.

There are same types of

bank account in South

Korea but there is no

joint account in South

Korea.

Approach any Bank of

choice & meet its

Bank Officer

Once the type of

account is decided, the

person should approach

a convenient bank. He

Opening a local bank

account is quite easy to

do in South Korea

whether you are a

Page 36: South Korea banking

has to meet the bank

officer regarding the

opening of the account.

The bank officer will

provide a proposal form

(Account Opening Form)

to open bank account.

foreigner or not. They

are sensitive to their

needs and some even

have translators on-site

or documents in

languages other than

Korean. However, if you

do have a friend who

can speak Korean, it

may prove to be very

helpful to have him/her

accompany you

Fill up Bank Account

Opening Form -

Proposal Form

The proposal form must

be duly filled in all

respects. Necessary

details regarding name,

address, occupation and

other details must be

filled in wherever

required. Two or three

specimen signatures are

required on the

specimen signature

card. If the account is

opened in joint names,

then the form must be

signed jointly. Now days

the banks ask the

applicant to submit

copies of his latest

photograph for the

purpose of his

identification.

On the form you will

have to fill out your

address in Korean,

name, job or school and

passport number or

alien card number. You

must write down your

name exactly as it is on

your passport.

When you have finished

writing down all your

details give the form to

the staff and they will

give you a number.

Give References for The bank normally The bank normally

Page 37: South Korea banking

Opening your Bank

Account

required references or

introduction of the

prospective account

holder by any of the

existing account holders

for that type of account.

The introducer

introduces by signing his

specimen signature in

the column meant for

the purpose The

reference or introduction

is required to safeguard

the interest of the bank.

required references or

introduction of the

prospective account

holder by any of the

existing account holders

for that type of account.

The introducer

introduces by signing his

specimen signature in

the column meant for

the purpose The

reference or introduction

is required to safeguard

the interest of the bank.

Submit Bank Account

Opening Form and

Documents

The duly filled in

proposal form must be

submitted to the bank

along with necessary

documents. For e.g. in

case of a joint stock

company, the

application form must

accompany with the

Board's resolution to

open the account. Also

certified copies of

articles and

memorandum of

association must be

produced.

The duly filled in

proposal form must be

submitted to the bank

along with necessary

documents. For e.g. in

case of a joint stock

company, the

application form must

accompany with the

Board's resolution to

open the account. Also

certified copies of

articles and

memorandum of

association must be

produced.

Officer will verify your

Bank Account

The bank officer verifies

the proposal form. He

checks whether the form

is complete in all

You will then have to

wait while they process

the form, usually about

15 minutes but it

Page 38: South Korea banking

Opening Form respects or not. The

accompanying

documents are verified.

If the officer is satisfied,

then he clears the

proposal form.

depends on how busy

they are. They will issue

you your new bank card

and passbook on the

spot. They will ask you

to check to make sure

all the details are

correct.

Deposit initial amount

in newly opened Bank

Account

After getting the

proposal form cleared,

the necessary amount is

deposited in the bank.

After depositing the

initial money, the bank

provides a pass book, a

cheque book and pay in

slip book in the case of

savings account. In the

case of fixed deposits, a

fixed deposit receipt is

issued. In the case of

current account, a

cheque book and a pay

in slip book is issued.

For recurring account,

the pass book and a pay

in slip book is issued.

You receive is a Woori V

Expat Check Card and

Pass Book / Bank Book.

The card can be used

overseas as it has the

Cirrus logo and it can

also be used as a debit

card. That means that

you can pay for things in

the shops using your

card. Some of the cards

also offer T-money so

you can pay for

transportation. The bank

book can be used for

withdrawing or

depositing money into

your account from your

ATM. It is a good way of

keeping tracks of your

money as every time

you use it you current

balance will be updated

in the bank book.

Page 39: South Korea banking

Introduction

Financial Supervisory system in S. Korea prior to FSS

Korea financial supervisory system was largely fragmented, with the banking,

securities, insurance, and non-bank sectors individually managed and

regulated by a separate agency. Further the authority of supervision was split

into two governing entities,

1] The supervisory agencies and

2] The Ministry of Finance and Economy.

Under this segregated supervisory system, the banking sector, the securities

sector, and the insurance sector was overseen by the ministry, and by the

Securities Supervisory Board .

Page 40: South Korea banking

Establishment of Financial Supervisory Service (FSS)

After the end of the 1980s which marked a time of diversification in the

financial industry and businesses’ crossover into other financial sectors. As

opening of markets to foreign investments and the ongoing of globalization

the financial environment changed considerably. The financial supervisory

system of past, which include the banking, securities, and insurance sectors

were each regulated by their respective supervisory agencies, which was has

longer fit to the innovations in the financial environment. And as a result, the

government established Financial Reform which is said as the financial

supervisory system.

Now the following are recommendations for the financial supervisory system:

Consolidation of the existing supervisory agencies into one organization

for better dealing in business expansion into financial sectors, market

liberalization, and the rising uncertainty in the market;

Establishment of financial supervisory authority which is independent from

macroeconomic, monetary and credit policies;

Establishment of an autonomous financial supervisory authority

independent from macroeconomic, monetary and credit policies;

Major progress

The consolidation of the financial supervisory system helped Korea in

following ways:

Quickly and efficiently recover from the Asian financial crisis which held

at the end of 1997.

T he FSS led an intensive restructuring of the financial industry eliminating

insolvent financial companies and putting whole financial system back on

track.

Page 41: South Korea banking

To increased insolvency resulting from the Asian financial crisis, the

FSS successfully headed a corporate restructuring and they

implemented a series of measures like the improvement of

conglomerates’ financial structure, liquidation of failing companies, and

workout program.

The FSS also reacted to the credit card crunch and market distress

which caused by excessive credit card business expansion , by

strengthening prudent supervision of credit card companies and

encouraging the development of M&As in order to prevent uncertainty

from spreading throughout the financial market.

So the integrated supervisory agency facilitated a systematic

application and supervision of programs introduced in the aftermath of

the crisis, like forward-looking criteria (FLC), a system of financial

holding companies, and the retirement pension plan.

Major Functions

Major functions of fss are:

Supervision of financial institutions: (Preliminary) review of license

applications (for bank, non-bank, financial investment company,

insurance company, credit card company, review of the terms and

conditions of financial institutions; supervision of the soundness of

business management and business activities

Examination of financial institutions: Analysis and evaluation of

financial companies’ business activities, financial position, and risk

management capacity; verification of companies’ compliance with

relevant statutes.

Page 42: South Korea banking

Supervision of the capital market: Operation system to maintain the

sound operation of primary and secondary markets for marketable

securities; capital market investigation to prevent unfair trade practices.

Supervision of accounting: Alignment of accounting standards to

international accounting standards to achieve enhanced transparency;

supervision of accounting to ensure a fair operation of the external

audit system.

Protection of customers of financial services: Consultation and

handling of customer complaints regarding financial services;

protection of customer rights through dispute mediation; financial

education of consumers

Korean Regulatory Agencies Enforcing Corporate

Governance :

Financial Supervisory Service: regulating banking, securities and

insurance

Regulating listed companies in the securities market

Staffs are not government officials => Remuneration, recruitment, and

training differ from those for the government officials.

Fair Trade Commission: Regulating Chaebols

Regulating private (unlisted) subsidiaries belonging to business groups

In many countries, private companies are not the target of regulation

since the public investors to protect are not involved: high cash-flow

right and high control right

Page 43: South Korea banking

But, in Korean business groups, unlisted subsidiaries’ behavior has

important implications on the public investors of the listed subsidiaries

belonging to the same business groups: low cash-flow right and high

control right

Role of Regulatory Agencies regarding the

Implementation of Corporate Governance:

Internal monitoring system: board of directors, audit committee, or

minority shareholders’ rights

External monitoring system (market pressure): potential shareholders

in the capital market, institutional investors, hostile takeovers

Regulatory agencies of the government: infrastructure for the external

monitoring system to work

Financial Supervisory Service, Fair Trade Commission, Prosecutors, or

Courts

Index of the External Monitoring System in Korea:

Sub-index: transparency index and accountability index

Transparency index: whether relevant information is distributed to

shareholders (both current and potential)

Accountability index: how shareholders (both current and potential)

place their pressures on the current management (hostile takeovers,

etc.)

Purpose and Vision

Page 44: South Korea banking

Purpose

The purpose of the Financial Supervisory Service is to contribute to the

growth of the national economy by:

1) Promoting the advancement of the financial industry and the stability of

financial markets.

2) Establishing sound credit order and fair financial transaction practices.

3) Protecting financial consumers, such as depositors.

Vision

The FSS adhere to a philosophy of a ‘client-focused mindset,’ ‘high-level

of expertise ’and‘financial supervision that builds the public trust.’

To realize its vision, the organization stresses five core values: client

orientation, professionalism, fairness, transparency, and accountability.

Current Issue

Early recovery from the crisis

After the financial crisis, the key policy objective of the FSS was

to stabilize the financial market and enhance the health and

soundness of Korea’s financial institutions.

During the recent period of credit expansion, the FSS took a

series of strengthened measures such as Loan-to-Value (LTV)

and Debt-to-Income DTI regulation. When the sub-prime

mortgage crisis emerged in the United States, the FSS

Page 45: South Korea banking

established a comprehensive monitoring system to track new

market developments.

The FSS operated a round-the-clock monitoring system that was

linked with its offices overseas, government agencies, and

financial institutions, and also closely coordinating policies with

the relevant organizations.

1. Introduction to Indian Banks

Banks over the years have become a significant aspect of an economy. With

the ongoing financial depression, the position of banks have become all the

more important in the course of working of the money market and hence the

economy of a nation. The banking sector forming apportions of the financial

sector primarily works as a financial intermediary generating money supply.

From the different macroeconomic models, banks have been found to be a

part of the supply side of the economy. However, over time banks have

transformed from merely money generating organizations to a multi tasking

entity

Page 46: South Korea banking

Functions of an Indian Bank

Functioning of a Bank is among the more complicated of corporate

operations. Since Banking involves dealing directly with money, governments

in most countries regulate this sector rather stringently. In India, the regulation

traditionally has been very strict and in the opinion of certain quarters,

responsible for the present condition of banks, where NPAs are of a very high

order.

Banking Regulation Act of India, 1949 defines Banking as "accepting, for the

purpose of lending or investment of deposits of money from the public,

Central Bank (Reserve Bank of India)

Private SectorPublic Sector Foreign Sector

Allahabad Bank

Bank of India

Bank of Baroda

Canara Bank

Dena Bank

HDFCBank

ICICI Bank

UTI Bank

Bank of Punjab

Bank of Rajasthan

ABN-AMRO Bank

Abu Dhabi

Commercial Bank

Bank of Cevlon

Citi Bank

Taib BAnk

Page 47: South Korea banking

repayable on demand or otherwise and withdraw able by cheques, draft, and

order or otherwise". Deriving from this definition and viewed solely from the

point of view of the customers,

Banks essentially perform the following functions:

1. Accepting Deposits from public/others (Deposits)

2. Lending money to public (Loans)

3. Transferring money from one place to another (Remittances)

4. Credit Creation

5. Acting as trustees

6. Keeping valuables in safe custody

7. Investment Decisions and analysis

8. Government business

Other Services Offered by Banks

Role of Banks in Indian Economy

Page 48: South Korea banking

Most developing countries, the commercial banking sector has been

the dominant element in the country’s financial system.

The Banking sector has performed the key functions of providing

liquidity and payment services to the real sector and has accounted for

the Bulk of the financial intermediation process.

Besides institutionalizing savings, the banking sector has contributed to

the process of economic development by serving as a major source of

credit to households, government, and business and to weaker sectors

of the economy like village and small-scale industries and agriculture.

Over the years, over 30-40% of gross household savings have been in

the form of bank deposits and around 60% of the assets of all financial

institutions accounted for by commercial banks.

Important landmark in the development of banking sector in recent

years has been the initiation if reforms following the recommendations

of the first Narasimham Committee on Financial System.

By reviewing the strengths and weaknesses of these banks, the

Committee suggested several measures to transform the Indian

banking sector from a highly regulated to amore market oriented

system and to enable it to compete effectively in an increasingly

globalised environment.

Comparisons of Total Savings and Deposits (in US$

billions)

SOUTH KOREA

Year 1999 2000 2001 2002 2003 2004

Gross domestic

saving

108 126 141 135 127 147

Gross domestic

saving/GDP(%)

33.7% 34.4% 33.5% 32.6% 30.9% 29.3%

Demand deposits 25 31 37 35 38 47

Page 49: South Korea banking

Saving deposits 48 81 117 123 144 173

Time deposits 33 96 128 163 162 212

INDIA

Year 1999 2000 2001 2002 2003 2004

Gross domestic

saving

90 88 107 105 114 120

Gross domestic

saving/GDP(%)

23.1% 21.5% 24.1% 23.4% 24.0% 24.0%

Demand deposits 26 28 29 30 31 35

Time deposits 126 140 158 175 197 231

Table compares total gross domestic saving across India and South Korea

during the period 1999-2004. In Gross domestic saving highest is South

Korea (an average 130.66), while in India 104. In terms of the ratio of Gross

Domestic Savings/GDP (“Gross Domestic Savings,” a category in the national

accounts, includes more types of savings than bank deposits), South Korea

maintain highest level (an average 32.4%), while in India 23.35%. In terms of

Demand deposits South Korea is highest than the India. In terms of time

deposits India is higher than South Korea.

Notes: *: Gross Domestics savings, from the national accounts, is an annual

flow measure; a: Demand deposits, balance of the accounts can be withdrawn

on demand of customers (e.g., check writing); b: Savings deposits, interest-

bearing accounts that can be withdrawn but not to be used as money (e.g., no

Page 50: South Korea banking

check writing, M2); c: Time deposits, savings accounts or CD with a fixed term

(M2).

Country Bank

Assets/GDP

Rank % of Bank

Assets

Government-

owned

Rank % of

Bank

Assets

Foreign-

Owned

Rank % of

Bank

Assets

in Top

3

Banks

Rank Net

Interest

Margin

as % of

Total

Assets

Rank

South

Korea

97.70 26 29.70 15 0.00 54 39.20 41 2.10 18

India 47.55 46 80.00 1 0.00 53 34.60 44 2.78 29

Structure of Banking Systems around the World

The far left-hand column gives a measure of the size of the banking system

relative to the economy, using the ratio of banking system assets to GDP for

every country; the average bank-assets-to-GDP ratio for each income group

is also displayed. The second column from the left gives the rank of each

country in terms of the relative size of the banking system.

Table shows the extent of government ownership of banks in countries, based

upon the percent of bank assets that are government-owned. There is wide

variation across the world in the extent of government ownership of banks,

from 0 percent in about one-third of the countries, to 80 percent in one

country, India. Bank Assets Foreign- Owned is 0.00% in both country and in

Bank Assets in top 3 Banks South Korea is better than India but there is no

big difference. In Net Interest Margin of Total Assets the South Korea is better

than India.

Performance of Banking Systems around the World

Country Return

on

Overall

Rank

Return

on

Overall

Rank

Noninterest

Revenue /

Overall

Rank

Nonperforming

Loans as % of

Overall

Rank

Page 51: South Korea banking

Assets

(ROA)%

Equity

(ROE)%

Total

Revenue

(%)

Total Loans

South

Korea

1.42 10 23.13 5 27.50 28 13.60 41

India 0.47 41 9.17 38 12.72 42 14.70 46

Although net income gives us an idea of how well a bank is doing, it suffers

from one major drawback: It does not adjust for the bank’s size, thus making it

hard to compare how well one bank is doing relative to another. A basic

measure of bank profitability that corrects for the size of the bank is the return

on assets (ROA), which divides the net income of the bank by the amount of

its assets. ROA is a useful measure of how well a bank manager is doing on

the job because it indicates how well a bank’s assets are being used to

generate profits

Although ROA provides useful information about bank profitability, we have

already seen that it is not what the bank’s owners (equity holders) care about

most. They are more concerned about how much the bank is earning on their

equity investment, an amount that is measured by the return on equity (ROE),

the net income per dollar of equity capital.

As with banking structure, there are noteworthy differences across countries

in banking industry performance. Two measures of bank profitability are

included: return on assets (ROA) and return on equity (ROE). Both measures

show wide variation across countries, and although they do not necessarily

run in tandem, countries stand in roughly the same position relative to each

other by either measure. Looking at the averages for the four income level

groups, a clear-cut positive correlation exists between ROE and income level.

The pattern is not as clear in the case of ROA, although the two highest

income groups show a considerably greater average ROA than the two

lowest.

Page 52: South Korea banking

Table shows that Return on Assets is better in South Korea then India. In

ROE, Noninterest Revenue/ Total Revenue, Nonperforming Loans of Total

Loans all are better in South Korea compare to India.

The Structure, Scope, and Independence of Bank Supervision

Country Bank

Supervisory

Authority

Single or

Multiple

Supervisors

Role of

Central

Bank

Scope of

Supervisory

Authority

Degree of

Supervisory

Independence

South

Korea

Financial

Supervisory

Commission,

Ministry of

Finance and

Economy

Multiple NCB BSI Low

India Reserve Bank of

India

Single CB B Low

"CB" indicates that the central bank is a banking supervisory authority; "NCB"

indicates that the central bank in not a banking supervisory authority.

"B" indicates that the supervisory authority (ies) has(have) responsibility only

for the banking industry; ""BSI" indicates that the supervisory authority(ies)

has (have) responsibility for the banking, securities, and insurance industries.

As with the single-multiple supervisor debate, a useful first step in addressing

the debate over the bank supervisory role of the central bank is to ascertain

basic facts.

Table presents that South Korea is a multiple supervisors and in India is

Single supervisors. Role of central bank in South Korea is NCB means central

bank is not a banking supervisory authority where in India is banking

supervisory authority.

Page 53: South Korea banking

Implementation of Banking Supervision

Country Frequency of On-

Site Exams at Large

and Mid-Size Banks

Number of

Professional Bank

Supervisors per

Institution

Banking Assets per

Professional

Supervisory Staff

(US$ Billions)

South Korea Annually 5.70 0.77

India Annually 5 to 6 0.27

Table shows comparative information for several aspects of the

implementation of supervision across countries. Table presents information on

the frequency of on-site bank examinations. We have no direct information on

the scope of bank examinations across our sample of countries – i.e., what

aspects of bank operations are examined, and how thoroughly. However, in

about half of the countries’ bank supervisors perform an on-site examination

of most banks annually.

An alternative measure of supervisory resource use is given in the far right-

hand column of Table. “Banking Assets per Supervisory Staff” gives a rough

measure of the “coverage” of banking system activity for which each

supervisory staff member is responsible.

Key Features of Deposit Insurance Schemes

Country Date

Enacted/

Revised

Coverage

Limits

Coverage

Ratio

Limit/GDP

per Capita

CO-

Insurance

Type of

Fund

Risk-

Adjusted

Premiums

Types of

Membership

South

Korea

1966 N/A N/A No Funde

d

No Compulsory

India 1961 $2,355 6 No Funde

d

No Compulsory

Page 54: South Korea banking

Approximately one third of all countries have already established deposit

insurance schemes. Information on selected design features for the schemes

in representative countries is presented in Table. It is quite clear from this

information that there are important differences in key features across all

these countries, which includes both emerging market economies and mature

economies.

One key feature of any deposit insurance scheme is the coverage limit for

insured depositors. The higher the limit the more protection afforded to

individual depositors. But the higher the limit, the greater the moral hazard.

Although many countries at all levels of income and in all parts of the world

have established deposit insurance schemes, they have not chosen a uniform

structure. The specific design features differ widely among countries as

indicated in Table.

Corporate Governance in Banking around the World

Country Strength of

External Audit

Bank

Accounting

Transparency

External Ratings

and Creditor

Monitoring

Corporate

Governance

Index

South Korea 3 4 2 9

India 4 3 1 8

An important dimension of corporate governance is the degree of

transparency that exists for the operations of a firm. The more comprehensive

and accurate is information about how managers conduct the firm’s business,

the more effective can stakeholders are in monitoring managers’

performance.

Table presents cross-country information on bank operations transparency:

(1) the effectiveness of external audits of banks; (2) the transparency of bank

accounting practices; and (3) the evaluations by external rating agencies and

Page 55: South Korea banking

incentives for creditors of the bank to monitor bank performance. An index

summarizing country-specific component data on each of these three

dimensions of corporate governance in banking is calculated, with higher

values indicating better corporate governance measures.

In addition, the far right-hand column aggregates these indexes into a

“Corporate Governance Index.” As in the case of other cross-country

information presented throughout this chapter, the countries compared in

Table show a relatively wide range of differences across corporate

governance characteristics.

Capital Adequacy Ratio – International Comparison

Year

Country

2002 2006 2007

South Korea 11.7 12.8 12.7

India 12.0 12.3 12.3

Capital is essential and critical to the perpetual continuity of a bank as a going

concern. On the recommendations of the Narasimham Committee (1992), RBI

introduced the internationally accepted Capital to Risk-Weighted Assets Ratio

(CRAR), also called Capital Adequacy Ratio (CAR) system as a Capital

Adequacy measure to be achieved in a phased manner by the Scheduled

Commercial banks operating in India.

RBI issued the Capital Adequacy guidelines in April, 1992. As per the

guidelines issued by RBI, banks in India, including foreign banks, were

required to maintain a minimum capital to Risk weighted assets ratio (CRAR)

norm of 8% in conformity with international standards.

Page 56: South Korea banking

Domestic Bank Credit to the Private Sector

(In real terms, in percent per annum)

Year

Country

1990-99 2000-04 2005 2006 2007

South

Korea

11.2 5.6 5.7 13.8 10.7

India 4.5 12.5 20.2 18.5 14.7

Comparison Banks in Emerging Economies (Size of Profits-)

Bank Country Size if

Profits in

2008

($millions)

PE Ratio Share Price

as on 30

Nov

20009(In

USD)

State Bank

of India

India 3470 9.36 48.15

Kookmin Korea 1714 8.6 19.01

Page 57: South Korea banking

Bank

EXIM BANK EXTENDS US$ 20 MILLION CREDIT LINE TO KOREA

DEVELOPMENT BANK

Export-Import Bank of India (EXIM Bank) has extended a credit line of US$ 20

million to Korea Development Bank, to finance export of Indian manufactured

goods and commodities to South Korea. Under this special credit

arrangement with Korea Development Bank, Exim Bank will finance 100%

value of export of eligible goods, which include agricultural products, software,

marine products, iron and steel products and raw materials as well, for which

Exim Bank has already obtained the permission of Reserve Bank.

Under the above facility, Korea Development Bank will open a letter of credit

favoring an Indian exporter which would include a note that it is payable at

Page 58: South Korea banking

sight to the beneficiary (Indian exporter) and that it is to be refinanced for a

period of 6 months or 12 months, as may be the case. Korea Development

Bank will authorize Exim Bank to accept a time draft drawn on Exim Bank and

reimburse a claiming bank in India and the L/C beneficiary i.e. Indian exporter

will get the proceeds at sight basis.

Indo-Korea Trade

India's exports to South Korea were US$468 million during 1997-98 which

plummeted to US$ 307.46 million during 1998-99 before bouncing back to

US$ 429 million during 1999-2000. Out of total exports to South Korea, export

of manufactured goods amounted to US$ 294 million in 1997-98, US$ 208

million in 1998-99 and US$ 326 million in 1999-2000. Major items of export to

South Korea during 1999-2000 were drugs, pharmaceuticals and fine

chemicals, dyes intermediates, aluminum, machine tools, cotton yarn fabrics

and made-ups, plastic and linoleum products, machinery and instruments.

Exim Bank's credit line is an initiative aimed at boosting India's exports to

South Korea.

Korea Development Bank

Since its establishment in 1954, the Korea Development Bank, the wholly-

owned Government Bank, has been the nation's leading provider of long-term

funds to major industrial projects. Moreover, since the financial crisis in Korea

in late 1997, the Bank has been at the epicenter of the financial reform and

bank-led restructuring of domestic corporations. KDB plays a leading role in

supporting trade finance, as well. KDB was ranked the "Best Asian Sovereign

Borrower" by "Euro money" in June 1999. Also KDB with total asset base of

US$ 66 billion on December 31, 1999, enjoys investment grade ratings

Baa2/BBB from Moody's and S&P, equivalent to the Republic of Korea

sovereign rating.

Page 59: South Korea banking

Korean investments in India

South Korea is one of the top ten leading investing countries in India. In 2003,

it invested US $ 24 million in India. South Korean business groups such as

LG, Samsung and Hyundai have not only established their presence in the

Indian business scene but are also looking at diversifying their businesses

into different sectors.

Korea accounts for about 2.64% of total FDI inflows, amounting to US$ 2.601

billion (excluding amount approved for ADRs/ GDRs).

The main sectors attracting foreign direct investment from South Korea are

transportation industry accounting for over 1/3rd of the share, fuels (power &

oil refinery), electrical equipment (computer software & electronics), chemicals

(other than fertilizer) and commercial, office & household equipments.

There have also been technical collaborations with South Korea- areas

include transportation industry, electrical equipment including computer

software & electronics, chemicals other than fertilizers, metallurgical industries

and industrial machinery.

In addition to the above sectors, studies have also revealed that the two

countries could set up joint collaborations in the sectors of infrastructure -

power, ports, telecommunications, ship building & ship repair, petrochemicals,

automobile ancillary, electrical & electronics, office equipment, banking &

financial services, software as well as iron & steel.

Out of 44 contracts awarded for National Highway Development Project, 9

have been won by Korean companies in collaboration with Indian companies

or independently. Recently, Hyundai Heavy Industries have won two mega

projects including one pipeline project worth US$ 600 million.

Page 60: South Korea banking

Indian investment in Korea

With the growing amount of globalization and liberalization, not only Korean

companies are making their presence felt in India, Indian firms too are

establishing themselves in Korea.

Last year in February, Tata Motors, Mumbai signed an agreement for

acquiring Daewoo Commercial Vehicles, Kunsan (South Korea) at a cost of

US$ 102 million.

The U.S. goods trade deficit with Korea was $13.1 billion in 2011, up $3.1

billion from 2010. U.S. goods exports in 2011 were $43.5 billion, up 12.0

percent from the previous year. Corresponding U.S. imports from Korea were

$56.6 billion, up 15.9 percent. Korea is currently the 7th largest export market

for U.S. goods.

Business opportunities in future

The Future of Money

Companies also love the idea of digital money because electronic payments

are faster and much cheaper, although this doesn’t necessarily mean that

they, or the retail banks, will pass on any time or cost savings to their

customers. And as far as multinationals are concerned, the sooner there’s a

single global e-currency the better, because volatility in currency markets is

yet another uncertainty to contend with.

Page 61: South Korea banking

in South Korea, more people own cell phones than computers and globally

smart phones will outsell PCs by mid-2012. So it’s pretty easy to see why

phone companies could be the banks of the future. Or, as Bill Joy has pointed

out, your phone will become your wallet, and a bank or Credit Card Company

will give it to you for nothing.

Preparing for future banking crises

A banking crisis can arrive anytime anywhere in current environments.

In the last few days, South Korea's financial regulator has temporarily

suspended seven savings banks to avert an overall systemic crisis

(WSJ, 22 February 2011). Those banks have insufficient liquidity to

meet a surge of withdrawals and inadequate solvency due to their

exposures to the weak South Korean real estate market. The

embattled saving banks have to solve their problems on their own or

seek to be acquired by large commercial banks.

In preventing it from developing into a systemic crisis, the Korean

regulator has acted early enough and found no need to involve public

money. Though in a different stage and extent of savings banks crisis,

similar responsiveness and decisiveness have been demonstrated by

Spain's government in dealing with beleaguered  savings

banks, 'Cajas' (FT) that are excessively exposed to the distressed

property sector.

South Korean banks look beyond their borders

By comparison, the brands of the South Korean banks are weak and not

known on an international scale. As the conglomerates pursued their

aggressive international expansion, the banks were left behind.

And the growth potential for banks at home is drying up as net interest

margins are narrowing in the increasingly saturated market. Looking

overseas is an attractive prospect for the financial institutions that need to

expand beyond the overcrowded domestic market, and also as part of the

plan to establish a globally recognized South Korean financial institution

Page 62: South Korea banking

that is on a level with the brand recognition of the country's conglomerates.

The banking industry – and government – is fully focused on international

expansion and lifting restrictions in order for it to happen.

South Korea's economy, and its banking industry, has passed through the

recovery phase, net interest margins continue to be squeezed. The KFB

notes that net interest margins have fallen from a high of 2.81% at the end

of 2005 to 2.32% at the end of 2010. While the margins have started to

improve, senior industry executives argue that the potential of the

domestic market is limited.

A gradual, strategic overseas expansion is needed since a significant gap

exists between Korean banks and big banks in developed countries. For

this, Korean banks will have to enhance their competitiveness when

expanding their overseas operations through choosing appropriate

countries to invest in considering their comparative advantages in areas

such as IT and customer networks, finding overseas niche markets in

small and medium-sized project financing, and developing the advanced

risk management of overseas branches.

Government action: For this reason there has been focus in recent months

on the South Korean government’s efforts to boost the international

competitiveness of the country's financial institutions, to bring them up to the

more sophisticated level of their international peers. The Financial Investment

Services and Capital Markets Act, which was introduced in 2009, did not have

the desired effect of creating a South Korean mega bank that could be

globally competitive, but there is now renewed focus on revising the

regulations and establishing homegrown hedge funds.

Future Ambitious plans

Page 63: South Korea banking

For example, the sale of Korea Exchange Bank (KEB) has been an ongoing

issue for a number of years, having been subject to a few failed bids.

Hana Financial Group, which is looking to increase its size and expand

internationally, announced in November 2010 its bid to acquire KEB, which

would allow it to take advantage of KEB’s international network .This

international outlook is shared by the major financial institutions in South

Korea. As part of its vision to create a homegrown global corporate and

investment bank, the government announced in June 2008 that it would

privatize Korea Development Bank, and in June 2009 KDB Financial Group

was launched as part of this restructuring.

KDB Financial Group has its international strategy mapped out. In the

first stage it aims to become one of the top 20 banks in Asia, and the

second stage to become one of the world’s top 20 corporate and

investment banks by the year 2020. KDB says that its initial focus will be

on Asia as well as promoting its services in traditionally strong areas

such as infrastructure project finance and corporate restructuring.

Banking more of an opportunity than a challenge in India

Bankers see the future of the sector in India as more of an opportunity

than a challenge even as it may involve changing the way banking is done

in India. To be sure, daunting challenges abound, and banks have to gear

up to meet these opportunity.

These challenges mainly emanate from growing aspirations of customers,

leadership and diversification of skill sets, effective use of technology,

attracting and retaining talent in the public sector and most importantly

financial inclusion. Risk-management practices also pose as a major

challenge in the Indian banking space.

According to Stuart Fraser, chairman of policy, City of London, the

capital requirement in infrastructure space is perhaps the biggest

challenge for India right now and the economy needs to open up more.

The biggest risk to the funding need and the economy is “the opening

doesn’t happen fast enough or doesn’t happen at all.” Otherwise growth

may get affected because of lack of financing.

Page 64: South Korea banking

Financial Service Overview of South Korea

South Korea has a large and well-developed financial services

industry, with financial assets valued at over 800% of GDP. Domestic

financial institutions have gained greater freedom of action from the

state than in the past but now face stiffer competition, including

unprecedented rivalry from abroad.

The Economist Intelligence Unit expects South Korea's financial sector

to perform relatively well in 2012-16. The industry is likely to grow,

despite the ongoing uncertainty affecting global financial markets and

concerns about volatility in the value of the local currency, the won.

Strains linked to non-performing property loans should ease in 2012.

The government is also keen to see South Korea develop into a

financial hub for East Asia by 2020. It aims to expand the role of public

funds (such as foreign reserves and pension funds) in domestic and

international financial markets, to develop the asset-management

sector and to modernize the country's financial markets.

The won was volatile in 2011, weakening sharply from the middle of

the year as hot money flowed out of the country. The government will

seek to reduce the volatility of the local currency in 2012 using a variety

of tools, including controls that slow or prevent sudden capital flows,

and caps on the amount of foreign-exchange derivatives that

institutions can own.

The Bank of Korea will squeeze the rules applying to new foreign-

currency borrowing, with the aim of reducing the risk posed to the

banking sector by excessively high levels of offshore debt.

Foreign currency borrowing will be allowed only for external

transaction, such as import settlements and outward foreign direct

investment.

Banking sector

Page 65: South Korea banking

2007a 2008a 2009b 2010b 2011b 2012c 2013c 2014c 2015c 2016c

Bank

performance

Banking

assets (%

change in

local currency) 10.9 20.3 -1.3 7.0 7.4 7.6 7.1 6.2 10.8 11.4

Bank loans (%

change in

local currency) 13.1 14.6 1.8 7.0 7.4 9.6 10.1 10.2 14.8 15.4

Bank deposits

(% change in

local currency) 6.4 16.5 8.2 6.9 7.3 9.5 9.0 8.1 12.7 13.3

Net interest

income (%

change in

local currency) 8.3 8.8 -7.2 3.0 4.0 6.5 6.0 5.4 8.6 9.7

Net margin

(net interest

income/assets

; %) 2.6 2.3 2.2 2.1 2.0 2.0 2.0 2.0 1.9 1.9

Actual. Economist Intelligence Unit estimates.  Economist Intelligence Unit

forecasts.

Source: Economist Intelligence Unit.

The FSS would like to see further consolidation of South Korea's

financial institutions. The July 2011 edition of The Banker, a UK-based

magazine, showed that only nine local lenders are ranked among the

world's top 1,000 banks by core capital. None are included in the list of

the 50 largest lenders.

South Korea has onerous rules restricting bank ownership, which are

compounded by convoluted regulations on buy-out funds and private-

equity funds, involving various different investor qualifications and

Page 66: South Korea banking

asset-allocation requirements. These combine to make bank mergers

and acquisitions a highly complex affair that becomes even more

difficult when foreign stakeholders are involved.

The government's privatization programmed, aimed at selling off large

banks that were nationalized during the 1997-98 Asian financial crisis,

will continue to be delayed unless the FSC succeeds in clarifying

ownership rules, especially for foreign investors. In late 2011 the

authorities failed in an effort to sell their majority stake in Woori

Finance, one of the country's leading banking groups.

There is concern in South Korea about the high dividend payments at

some foreign-owned banks, such as Korea Exchange Bank (KEB,

which is controlled by a US-based private-equity company, Lone Star

Funds). The regulator has said that their profits would be better used to

strengthen capital buffers to meet the stiffer capital-adequacy

standards that will be required under Basel III regulations. A local

lender, Hana Bank, made a W3.9trn bid for KEB in December 2011;

the deal awaits regulatory approval.

Conclusion

Korea has seen a rapid financial development in the past decade in line with

financial liberalization policies that the government rigorously pursued. The

government’s ambition to make Korea a financial hub in Northeast Asia

supported by the self-serving financial industry pushed the financial expansion

far beyond the ability of the Korean economy to deal with risks and dangers

inherent in financial development. Eventually, the Korean financial sector has

become the victim of its own success, suffering ill-fated overstretch.

Benefits of the financial expansion for the overall economy remain elusive.

The widespread belief that financial liberalization would deliver an efficient

allocation of capital and smooth external shocks proved to be an illusion.

Page 67: South Korea banking

Strong foreign presence in the Korean financial markets at best helped

shareholder capitalism to gain a foothold in Korea and mass enthusiasm for

shares broke out that the Korean society has never seen before. Resulting

stock market boom, though, has not served to promote corporate

investments. The increased foreign bank entry has no doubt generated profit-

oriented climate in the Korean banking sector and has played a role as

trendsetters for the operations of domestic counterparts. But in foreign banks,

business strategy determined by their headquarters focuses on opportunities

to maximize profits without reflecting the overall condition of the Korean

economy, thus substantially contributing to market instability.

Furthermore, focus on profit maximization and increased market competition

between domestic and foreign banks as well as between banks and NBFIs did

not improve efficiency, but aggravated distortion in capital allocation. Its

outcomes were household debt-driven asset bubbles and heightened FX

market volatility which became major threats to the overall economy. Another

novelty from the ongoing financial liberalization was that economic policies

has increasingly held captive to dynamics of financial expansion, facing the

government with a daunting task of managing economic dilemma.

Page 68: South Korea banking

The financial hub project, the major driving force of financial liberalization

since 2004, runs increasingly encounter to the overriding objective of Korea’s

economic policies to maintain export competitiveness. Amid the escalating

“currency war” in which Korea has been one of the most active participants,

the Korean government is now compelled to choose one of both strategies

and is more likely to opt for export competitiveness and currency stability

tightening capital controls. Recently the Korean government stepped up

capital controls by restoring a tax on foreign bond purchases and imposing a

levy on non-deposit foreign currency debt held by domestic and foreign bank

branches. Those measures are violating commitments under the current

GATS and in FTAs with US and EU which the Korean government already

signed. The Korean government’s determined action for capital controls was

encouraged by the G20 Seoul Summit agreement in November 2010 that

gave emerging markets the green light to use capital controls to deal with

volatility in their currencies. It just jettisoned its commitment to current WTO

rules and provisions in FTAs arguing that the G20 agreement stands above

other rules. Korea’s relentless efforts in the past decade to emulate US-style

financial system following neoliberal orthodoxy have failed to achieve the

desired results. Negative effects of financial liberalization outweighed positive

effects. Most critical was that the Korean banking sector has receded from its

core function of financial intermediary. Despite rapid expansion of the banking

industry with its strong and well-established nationwide branch networks a

huge vacuum of financial services to marginalized 50 families and SMEs has

emerged which could be only partly filled by the state-owned policy banks. It

also brought about a different kind of crisis-prone financial system.

As a result of ongoing consolidation process commercial banks have grown

too big to fail. This combined with pervasive self-serving behavior, poses

significant threat to financial stability. Paradoxically, the more progress of

financial liberalization, the more government intervention is required to

alleviate market deficiencies and correct market failure in crisis situation.

Korea needs fundamental rethinking of financial development, shifting policy

paradigm from unmanageable financial liberalization to strengthening bank’s

basic role of stable financial intermediation and promoting financial inclusion

of marginalized families and SMEs.

Page 69: South Korea banking

The Narasimham Committee has presented a detailed analysis of various

problems and challenges facing the Indian banking system and made wide-

ranging recommendations for improving and strengthening its functions.

Introduction

The real sector reforms were felt to restructure the Indian banking industry.

The reform measures necessitated the deregulation of the financial sector,

particularly the banking sector. The RBI had proposed to from the committee

chaired by M. Narasimham, former RBI Governor in order to review the

Financial System viz. aspects relating to the Structure, Organizations and

Functioning of the financial system. The guidelines that were issued

subsequently laid the foundation for the reformation of Indian banking sector.

The main recommendations of the Committee were: -

i. Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a

period of five years

ii. Progressive reduction in Cash Reserve Ratio (CRR)

iii. Phasing out of directed credit programmers and redefinition of the

priority sector

iv. Deregulation of interest rates so as to reflect emerging market

conditions

v. Imparting transparency to bank balance sheets and making more

disclosures

vi. Giving freedom to individual banks to recruit officers

vii. Inspection by supervisory authorities based essentially on the internal

audit and inspection reports

viii. A separate authority for supervision of banks and financial institutions

which would be a semi-autonomous body under RBI

ix. Revised procedure for selection of Chief Executives and Directors of

Boards of public sector banks

Page 70: South Korea banking

Reduction of SLR and CRR

The Narasimham Committee had argued for reductions in SLR on the

grounds that the stated government objective of reducing the fiscal deficits will

obviate the need for a large portion of the current SLR.  Similarly, the need for

the use of CRR to control secondary expansion of credit would be lesser in a

regime of smaller fiscal deficits.  The committee offered the route of Open

Market Operations (OMO) to the Reserve Bank of India for further monetary

control beyond that provided by the (lowered) SLR and CRR reserves.

The arguments for higher or lower SLR and CRR ratios stem from two

different perspectives one which favors the banks, and the other which favors

the bank reserves as a monetary policy instrument.  The bank perspective

seeks to maximize "lendable" resources, the banks' control over resource

deployment, and returns to the banks from the "preempted" funds.

Some problems with the stated aim of reducing SLR and CRR

are:

1. The supporting condition of smaller fiscal deficits is not happening

in reality

2. Open market operations have not been used to any significant

extent in India for monetary control.  The time required for gaining

experience with the use of such operations would be much more

than 5-6 years.

3. A commitment to a unidirectional movement of these vital controls

irrespective of the effects on, and the response of, other economic

factors (such as inflation), would be unwise.

Page 71: South Korea banking

Investment under Automatic Route with repatriation benefits

Non Resident Indians (NRIs),

Person of Indian Origin (PIOs) and

Overseas Corporate Bodies (OCBs) can invest in shares / convertible

debentures of Indian companies under the Automatic Route without obtaining

Government or RBI permission except for a few sectors where Foreign

Investment Promotion Board (FIPB) / SIA permission is necessary, or where

the investment can be made only up to a certain percentage of paid up

capital.

Investment with Government approval

Investments not eligible under the Automatic Route are considered by the

FIPB, a high Powered inter-ministerial body under the chairmanship of

Secretary, Department of Industrial Policy & Promotion, SIA, subject to

sectoral limits / norms. These investments also enjoy full repatriation benefits.

Other investments with repatriation benefits

Investment in Domestic Mutual Funds

Investment in Bonds Issued By Public Sector Undertakings

Purchase of Shares Of Public Sector Enterprises

Deposits with Companies (For A Minimum Period Of 3 years)

Investment in Government Securities / Shares

Investing in Korea: Asia's New Hub

Korea is known as a world-class industrial base that includes both traditional

steel-making and cutting-edge high-tech consumer products. Hence even

Korean companies are far more advanced than China or India.

Page 72: South Korea banking

During the last 20 years, Korean companies have also matched their

sometimes better-known Japanese rivals.

If yesterday belonged to the Sony Walkman and PlayStation, today belongs to

Samsung's dazzling array of high tech gadgetry. 

Today Korea is positioning itself as the hub of Asia: a financial hub, a logistics

hub, and IT hub, a culture hub, a convention hub.

There are 44 cities with populations of more than one million within a four-

hour flight from Seoul. Korea's popular culture is also fast becoming

synonymous with “cool” across Asia. Korean TV and pop stars are the

favorites of teenagers throughout China, Thailand and Hong Kong.

Executive summary

The executive summary of South Korea and Indian Banking sector. We have

worked in this Global Project about the Economic overview of South Korea

and India, and also different banking parameters as per the secondary data

available.

Economic Overview of the South Korea Country – we have studied

Demographic Profile of the South Korea which includes Background ,

Age ,sex ratio, languages, Life expectancy, growth, Literacy, religion.

Economic Geography-it contains different aspects of land and

agriculture of India and South Korea.

Page 73: South Korea banking

o South Korea has a land area of 96,920 square km, with 16.58

percent of arable land. The country's main agricultural crops are rice

and barley. Other product supplied by South Korea includes

vegetables, fruits, root crops, cattle, pigs, chicken, milk, eggs and fish.

o India, on the other hand, adopted an import-substitution policy since its

independence until the early 1990s. Since 1991, India has introduced

wide-ranging economic policy reforms and is moving towards a market-

driven economy.

At present, India is the second fastest growing economy in the world.

Both India and Korea have been getting integrated with the world

economy, enhancing their role in the international economic order.

Overview different economic sector of South Korea

o South Korea's Industry Sector:- South Korea's agriculture contributes

only 3 percent of the nation's total GDP in 2010 and employs 7.3

percent of the country's workforce.

o The industry of South Korea contributes 39.4 percent of the

country's GDP in 2010.

o Rice is the most important agriculture crop of South Korea.

o Electronics boosted the South Korean economy in the 1980s, by

becoming the world's sixth largest manufacturer of electronic goods

o The automotive industry also plays a major role in the South

Korean economy today.

o Services in South Korea contributes 57.6 percent of the nation's

total GDP and employs 68.4 percent of the workforce.

Overview of Business and trade at international level

o South Korean economy and trade – a brief history : 1945, South

Korean economy was mainly agricultural. In the following decades

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South Korea developed light industry, consumer products and heavy

industry.

o At the beginning of the 21st century, South Korea is leader in the IT

sector thanks to the aids received by its government. Leading firms in

this sector are Samsung Electronics and LG Electronics.

South Korean economy and trade – a brief history :

The biggest part of South Korean GDP is made up by the service

industry (about 55%)

The second most important South Korean trade sector.

South Korean industries include: the textile and steel sectors

South Korean international trade – Import and Export

o Import – South Korea imports mainly mineral fuels, electric and

mechanical equipment, iron and steel

o Export – South Korea’s most important export partners are again

China, Japan, the European Union and the USA, and the products that

South Korea exports are: electric and electronic goods, machinery,

vehicles, ship and boats.

Overview of Industries trade and commerce

o The Korean financial industry consists of three groups: (i) a central

bank (BOK); (ii) deposit money banks, including commercial and

specialized banks; and (iii) nonbank financial institutions (NBFIs),

which include development, savings, investment, insurance, and other

institutions.

PESTEL ANALYSIS

o PESTLE analysis of South Korea identifies issues that affect the

country’s performance through the prism of current strengths

(strengths), current challenges (weaknesses), future prospects

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(opportunities) and future risks (threats).

o The political landscape discusses the evolution of the political scenario

in South Korea in different periods.

o The economic, social, foreign and defence policies are considered in

the political landscape section.

o The social landscape covers the demographics, education and

healthcare scenario in South Korea. The social welfare policies of the

government along with the country’s performance in terms of

healthcare, income distribution.

o The technological landscape discusses the structure and policies in

terms of Intellectual property, research & development, technology.

o The legal landscape examines the structure of the judicial system,

legislation affecting businesses, tax regulations, labor laws, trade

regulations and corporate governance in South Korea.

o The environmental landscape in South Korea discusses the

environmental regulations and policies of the country

Bank is a lawful organization, which accepts deposits that can be

withdrawn on demand. It also lends money to individuals and business

houses that need it.

o The Bank of Korea (BOK) is the central bank of South Korea and

issuer of South Korean won. It was established on June 12, 1950 at

Seoul, South Korea.

Primary Purpose of banking.

o The primary reason of the Bank is to pursue price stability

o The central bank has to safeguard the value of the money by keeping

inflation low.Because the purchasing power of money depends on

prices. When prices rise, the same amount of money buys less than

before.

Organization contains Monetary Policy Committee.

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When the Monetary Policy Committee deems it necessary for the

implementation of monetary and credit policies, the Bank of Korea

request the FSS to perform an examination of a bank and other

financial institutions.

Functions Of South Korea Bank

o Issuing Banknotes and Coins

o Formulating and Implementing Monetary and Credit Policy

o . Acting as the Banker's Bank

o Serving as the Government's Bank

o Operating and Managing Payment Systems

o Managing Official Foreign Exchange Reserves

o Monitoring the Financial System and Assessing Its Stability

o Carrying out Economic Education

Banks of south korea

central bank

o Nationwise bank

o Special bank

o Local bank

Types of Accounts:

o Savings

o Time Deposit

o Installment

o Services, Fees & Interest

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o Credit Cards

o The Korea Travel Card (KTC)

o Sending Money Home

The Bank of Korea policy objective

The Bank of Korea Act provides that the sole purpose of the Bank is to

contribute to the sound development of the national economy by pursuing

price stability through the formulation and implementation of efficient

monetary and credit policies.

Recently, following the global financial crisis, the Bank of Korea has placed

greater emphasis on heightening the stability of the financial system.

Organization

The Monetary Policy Committee as the policy decision-making body, has

the right to deliberate and resolve on major matters concerning monetary and

credit policy and the operations of the Bank of Korea.

Resolutions at a Monetary Policy Committee meeting are adopted by simple

majority when there are at least five members present. Any member may

submit a proposal with the concurrence of at least one other member.

7 steps of opening a Bank account in India and South Korea

Financial Supervisory system in S. Korea prior to FSS

o Korea financial supervisory system was largely fragmented, with the

banking, securities, insurance, and non-bank sectors individually managed

and regulated by a separate agency. Further the authority of supervision

was split into two governing entities,

1] The supervisory agencies and

2] The Ministry of Finance and Economy.

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Establishment of Financial Supervisory Service (FSS)

After the end of the 1980s which marked a time of diversification in the

financial industry and businesses’ crossover into other financial sectors.

Introduction to Indian Banks

With the ongoing financial depression, the position of banks have become all

the more important in the course of working of the money market and hence

the economy of a nation. Banks over the years have become a major aspect

of an economy. However, over time banks have transformed from merely

money generating organizations to a multi tasking entity.

Types of Indian banks:

o Central bank

o Public sector

o Private sector

o Foreign sector

Functions of an Indian Bank:

Banks essentially perform the following functions:

1. Accepting Deposits from public/others (Deposits)

2. Lending money to public (Loans)

3. Transferring money from one place to another (Remittances)

4. Credit Creation

5. Acting as trustees

6. Keeping valuables in safe custody

7. Investment Decisions and analysis

8. Government business

Korea Development Bank

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Since its establishment in 1954, the Korea Development Bank, the wholly-

owned Government Bank, has been the nation's leading provider of long-term

funds to major industrial projects.

Korean investments in India

Korea accounts for about 2.64% of total FDI inflows, amounting to US$ 2.601

billion (excluding amount approved for ADRs/ GDRs).

The main sectors attracting foreign direct investment from South Korea are

transportation industry accounting for over 1/3rd of the share, fuels (power &

oil refinery), electrical equipment (computer software & electronics), chemicals

(other than fertilizer) and commercial, office & household equipments.

Indian investment in Korea

With the growing amount of globalization and liberalization, not only Korean

companies are making their presence felt in India, Indian firms too are

establishing themselves in Korea.

The U.S. goods trade deficit with Korea was $13.1 billion in 2011, up $3.1

billion from 2010. U.S. goods exports in 2011 were $43.5 billion, up 12.0

percent from the previous year. Corresponding U.S. imports from Korea were

$56.6 billion, up 15.9 percent. Korea is currently the 7th largest export market

for U.S. goods.

Business opportunities in future

o The Future of Money

o Preparing for future banking crises

o South Korean banks look beyond their borders

o Government action

Future Ambitious plans

Banking more of an opportunity than a challenge in India

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CONCLUSION

Economic relations between India-Korea have strengthened over the years.

Currently the trade and investment between the two countries is low

compared to the size and structural complementarities of the two economies.

There has been changing demand structures and comparative advantages of

both economies in complementary sectors and so the trade between the two

countries increases.

India’s exports mainly low value-added and industrial products while India’s

imports from Korea largely consist of relatively high value-added products.

Comparative advantage at both the aggregated and disaggregated levels

shows that Korea has been specializing in a few products which are highly

competitive as India’s exports have been more diversified.

Now a day’s foreign investment from Korea has increased over the years so

the share in total FDI inflows to India has declined. In addition Korean

investment is concentrated in a few sectors such as the electrical equipment

and metallurgical industries. So there are opportunities for small and medium-

sized Korean companies to synergies with Indian SMEs in the areas of semi-

conductors, plastics, auto parts, agricultural instruments, textiles, multi-media,

etc. Since, development of infrastructure in India is a priority and requires

financial markets in India have also overseen a paradigm shift. In the pre-

liberalization era, they were characterized by administered interest rates,

quantitative ceilings, captive markets for government securities, pegged

exchange rate, current and capital account restrictions. Various reforms have

ensured that the markets have made the transition to a regime of market

determined interest and exchange rates, price based instruments of monetary

policy, current account convertibility and phased liberalization of the capital

account.

The rise in the proportion of portfolio investment has also imparted increased

volatility to the total capital flows, which in turn, increases the volatility of the

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exchange rate. While the RBI has been playing an important role in the

stabilization of capital flows via sterilization activities, with increased capital

liberalization and global integration, India is now exposed to the volatility of

foreign capital flows and, in general, that of the international financial

environment.

`BIBILIOGRAPHY

http://eng.bok.or.kr/broadcast.action?menuNaviId=1628

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http://www.korea4expats.com/article-opening-a-bank-account.html

http://www.theasianbanker.com/bankmetrics/ab500/2011-2012/

asia-pacific-largest-banks

http://ecos.bok.or.kr/flex/EasySearch_e.jsp

http://www.theasianbanker.com/#india

http://ecos.bok.or.kr/jsp/use/economyinfo_e/InSideEcoInfo.jsp