february 2007 ministry of finance and economy financial hub initiative in korea
TRANSCRIPT
February 2007
Ministry of Finance and Economy
Financial Hub Initiative in KoreaFinancial Hub Initiative in Korea
Table of Contents
Why Finance?Why Finance?II
1
Strategy for Financial Hub Promotion Strategy for Financial Hub Promotion IIII
Major AccomplishmentsMajor AccomplishmentsIIIIII
Future PlansFuture PlansIVIV
I. Why Finance?
i. Why Finance? (1/3) i. Why Finance? (1/3)
A New Growth Engine for the Korean Economy
1.82.12.32.6
4.24.34.54.7
15.0
13.6
12.3
10.2
0
2
4
6
8
10
12
14
16
'93 '97 '01 '05
Unit: Million
Services
Manufacturing
Agriculture
Employment trend by industry
i. Why Finance? (2/3) i. Why Finance? (2/3)
A New Growth Engine for the Korean Economy
3.8
5.256.19 6.1
7.92
0
2
4
6
8
10
'85 '90 '95 '00 '05(3Q)
Unit: %
• Increased in Value Added (’00) : 50 billion Dollar• Increased in Production (’00) : 100 billion Dollar• Increased in Employment (’00) : 9 billion employees
• Increased in Value Added (’00) : 50 billion Dollar• Increased in Production (’00) : 100 billion Dollar• Increased in Employment (’00) : 9 billion employees
Financial industry’s contribution to GDP
i. Why Finance? (3/3) i. Why Finance? (3/3)
A New Growth Engine for the Korean Economy
Services Industry
• U.S : 78.4%(’04)
• G7 : 71.5%(’04)
• OECD : 69.0%(’04)
Services Industry
• U.S : 78.4%(’04)
• G7 : 71.5%(’04)
• OECD : 69.0%(’04)
25.9%
66.3%
7.4%
Services
Manufacturing &Construction
Agriculture
Employment structure (’06)
II. Strategy for
Financial Hub Promotion
Strategic RoadmapStrategic Roadmap
Clear GoalsClear Goals
3-Stage Development Plan
3-Stage Development Plan
I. Strategy for Financial Hub Promotion (1/4)
2
Clear Goals for Financial Hub Promotion
Volume of bond issuance compared to GDPVolume of non-resident bond issuanceSize of fund market compared to GDPVolume of PEF
Index for globalization of finances*
* (FDI + Volume of Portfolio)/GDP
• Weight of overseas asset management activities
Number of foreign financial companies in Korea
Number of world’s top 50 asset management companies in Korea (Inc. regional headquarters)
Performance Index (e. g.)
AttractionAttraction
of of
financial companiesfinancial companies
AttractionAttraction
of of
financial companiesfinancial companies
Internationalization Internationalization
of of
financial transactionsfinancial transactions
Internationalization Internationalization
of of
financial transactionsfinancial transactions
Growth Growth
ofof
financial marketsfinancial markets
Growth Growth
ofof
financial marketsfinancial markets
3
I. Strategy for Financial Hub Promotion (2/4)
Creation of solid financial infrastructure
Foreign exchangeliberalization
Foreign exchangeliberalization
Financial systemderegulation
Financial systemderegulation
Financial supervisionrenovation
Financial supervisionrenovation
Business and living environment improvement
Business and living environment improvement
Attraction of foreign financial institutions Attraction of foreign financial institutions Attraction of foreign financial institutions Attraction of foreign financial institutions
< Leading business >
Capital market
- Asset management business - Restructuring market - Private equity fund (PEF)
Capital market
- Asset management business - Restructuring market - Private equity fund (PEF)
< Following business >
Foreign exchange market
Insurance market
Commercial banking
Foreign exchange market
Insurance market
Commercial banking
Development of finance market
Strategic Roadmap
4
I. Strategy for Financial Hub Promotion (3/4)
3-Stage Development Plan
( ~ 2007)( ~ 2010)
( ~ 2015)
RegionalRegionalFinancial HubFinancial HubPrimary StagePrimary Stage
NicheNicheFinancial HubFinancial Hub
Establishing Establishing
solid financial solid financial
infrastructureinfrastructure
Establishing Establishing
solid financial solid financial
infrastructureinfrastructure
Specializing inSpecializing in
asset managementasset management
businessbusiness
Specializing inSpecializing in
asset managementasset management
businessbusiness
Growing into Growing into
a financial huba financial hub
in Asiain Asia
Growing into Growing into
a financial huba financial hub
in Asiain Asia
5
I. Strategy for Financial Hub Promotion (4/4)
III. Major Accomplishments
i. Reform Measures for Solid Financial Infrastructure(1/4)
• Eliminate the lingering restrictions on capital account transactionEliminate the lingering restrictions on capital account transaction * Abolish capital account transaction permission system (Jan. 2006)* Abolish capital account transaction permission system (Jan. 2006)
• Accelerate the timetable for the complete liberalizationAccelerate the timetable for the complete liberalization - by year 2011 by year 2009- by year 2011 by year 2009
• Eliminate the lingering restrictions on capital account transactionEliminate the lingering restrictions on capital account transaction * Abolish capital account transaction permission system (Jan. 2006)* Abolish capital account transaction permission system (Jan. 2006)
• Accelerate the timetable for the complete liberalizationAccelerate the timetable for the complete liberalization - by year 2011 by year 2009- by year 2011 by year 2009
Liberalization of Foreign Exchange Market
33rdrd Phase Phase(’08~’09)(’08~’09)11stst Phase Phase
(’02~’05)(’02~’05)22ndnd Phase Phase
(’06~’07)(’06~’07)
Red-tapeRed-tape
reduction reduction
Red-tapeRed-tape
reduction reduction GradualGradual
deregulationderegulation
GradualGradual
deregulationderegulation
Complete liberalizationComplete liberalization
except for except for
safety measuressafety measures
Complete liberalizationComplete liberalization
except for except for
safety measuressafety measures
FX Liberalization PlanFX Liberalization Plan
7
““Negative List System” Negative List System” ““Negative List System” Negative List System”
• Securities and Exchange Act• Futures Trading Act• Act on Business of Operating Indirect Investment & Assets• Trust Business Act • Merchant Banks Act • Corporate Restructuring Investment Companies Act • Specialized Credit Financial Business Act
• Securities and Exchange Act• Futures Trading Act• Act on Business of Operating Indirect Investment & Assets• Trust Business Act • Merchant Banks Act • Corporate Restructuring Investment Companies Act • Specialized Credit Financial Business Act
““Consolidated Consolidated Capital Market Act”Capital Market Act”
““Consolidated Consolidated Capital Market Act”Capital Market Act”
FutureFuture
Positive List System Positive List System
PresentPresent
i. Reform Measures for Solid Financial Infrastructure(2/4)
Introduction of the Consolidated Capital Market Act
8
i. Reform Measures for Solid Financial Infrastructure(3/4)
• Communication channel btw government & market participants (e.g. EUCCK, Amcham, FBG, foreign embassies in Korea etc.)
• In-depth door to door interviews on foreign and domestic financial companies• 48 finance related laws were translated in English
• One-stop grievance handling
• Communication channel btw government & market participants (e.g. EUCCK, Amcham, FBG, foreign embassies in Korea etc.)
• In-depth door to door interviews on foreign and domestic financial companies• 48 finance related laws were translated in English
• One-stop grievance handling
• Introduce no-action letter system (Jul. 2005)
• Disclose supervision manual (Aug. 2005)
• Strengthen remedy for violation of private right (Aug. 2005)
• Introduce no-action letter system (Jul. 2005)
• Disclose supervision manual (Aug. 2005)
• Strengthen remedy for violation of private right (Aug. 2005)
Launch Launch 「「 fn HUB Koreafn HUB Korea 」」 (Jan. 2006)(Jan. 2006)
Setup more Setup more Reasonable Financial Supervision SystemReasonable Financial Supervision System
Establishment of Market-Friendly System
9
i. Reform Measures for Solid Financial Infrastructure(4/4)
• • Survey on statistical status of financial professionals & recruiting plan in financial institutions (Sep. 2006)
- Publish annual reports of financial skills availability starting from year 2006
• Survey on statistical status of financial professionals & recruiting plan in financial institutions (Sep. 2006)
- Publish annual reports of financial skills availability starting from year 2006
• Attract renowned scholars through active recruitment - Open lecture series of eminent faculty from abroad (Sep. 2006) - Promote to recruit world’s top 100 research scholars in finance
• Construct relationship with world renowned institution - KAIST-Reuters (Oct. 2006), KAIST-KDB (Mar. 2006)
• Attract renowned scholars through active recruitment - Open lecture series of eminent faculty from abroad (Sep. 2006) - Promote to recruit world’s top 100 research scholars in finance
• Construct relationship with world renowned institution - KAIST-Reuters (Oct. 2006), KAIST-KDB (Mar. 2006)
LaunchLaunch 「「 Financial Skills Network CenterFinancial Skills Network Center 」」 (Jun. 2006)(Jun. 2006)
OpenOpen 「「 Graduate School of Finance Graduate School of Finance 」」 at KAIST at KAIST (Mar.(Mar. 2006)2006)
Build-up of Institutes to develop Finance Professionals
10
ii. Improvements to enhance Competitiveness (1/4)
• Establish ‘Consolidated Stock Exchange’ (KRX) (Jan. 2005)
• Complete restructuring on investment
trust companies (May 2005)
• Establish ‘Consolidated Stock Exchange’ (KRX) (Jan. 2005)
• Complete restructuring on investment
trust companies (May 2005)
Build Market Infrastructure
Increase Demand for
Assets under
Management
• Introduce retirement pension (Dec. 2005)
• Increase outsourcing ratio of pension funds * 3.3%(’03) 8.7%(’04) 10.9%(’05)
Relax
Related
Regulation
s
• Lighten investment limit for ‘fund of fund’ * Ratio limit : 50% 100%
• Reduce the minimum capital requirement
for asset management companies * Capital requirements : 10bn won 3bn won
Asset Management Market
13
ii. Improvements to enhance Competitiveness(2/4)
• Issue 20 yr. government bonds successfully
- Monthly issue 550 bn Won from January 2006
IncreaseIssuance ofLong-Term
Bonds
Internationalize
Bond
Market
• Reform of bond issuance procedure for foreign investors’ easier access to the market (e.g. Permit the international accounting standards & American accounting standards (Dec. 2004))
• Issuance of Kimchi bonds worth of $300 mn by Bear Stearns (Jun. 2006)
• Issuance of Arirang bonds worth of $ 500 mn (Jan. 2007)
Bond Market
InnovateMarket
Infrastructure
• Create environment for foreign credit rating
• Ease agencies’ entry into domestic market (Jul. 2006)
- Requirement of the number of professionals : 30 20
14
ii. Improvements to enhance Competitiveness(3/4)
Restructuring Market
15
• Amend KAMCO act and allow investment of overseas
non-performing assets (Feb. 2006)
• Collect information of restructuring markets in Northeast Asia
• Amend KAMCO act and allow investment of overseas
non-performing assets (Feb. 2006)
• Collect information of restructuring markets in Northeast Asia
• Introduce PEF through ‘Indirect Investment Asset
Management Business Act’ (Apr. 2004)
• Broaden range of investors and increase flexibilities in investment (Jun. 2006)
- Permit the investment of venture capitals
- Lighten requirements for SPC shareholders
• Introduce PEF through ‘Indirect Investment Asset
Management Business Act’ (Apr. 2004)
• Broaden range of investors and increase flexibilities in investment (Jun. 2006)
- Permit the investment of venture capitals
- Lighten requirements for SPC shareholders
ii. Improvements to enhance Competitiveness(4/4)
Build Infrastructure for Asset ManagementBuild Infrastructure for Asset Management
- Establish IT, risk management & evaluation system (Jul. 2006)
Build Infrastructure for Asset ManagementBuild Infrastructure for Asset Management
- Establish IT, risk management & evaluation system (Jul. 2006)
Establishment Of KIC (Jun. 2005)
Build Mid-Long Term Investment Policy Build Mid-Long Term Investment Policy (Sep. 2006)
- Build investment manual (e.g. investment principle, investment asset group)
Build Mid-Long Term Investment Policy Build Mid-Long Term Investment Policy (Sep. 2006)
- Build investment manual (e.g. investment principle, investment asset group)
Finalize Asset Trust ContractFinalize Asset Trust Contract - Bank of Korea : $ 17 bn (Jun. 2006)
- Ministry of Finance and Economy : $ 3 bn (Sep. 2006)
Finalize Asset Trust ContractFinalize Asset Trust Contract - Bank of Korea : $ 17 bn (Jun. 2006)
- Ministry of Finance and Economy : $ 3 bn (Sep. 2006)
Start InvestmentStart Investment
- Invest $1 bn through bond passive index (Nov. 2006)
Start InvestmentStart Investment
- Invest $1 bn through bond passive index (Nov. 2006)
16
95 % Increase in the last 3 years.
Total Market Capitalization
Qualitative changes
iii. Market Performance by Sector (1/5)
Stock Market
723
1,568
357
0
250
500
750
1,000
USD billion
429
836
’04 ’05 ’06.11 Hong Kong(’06.11)
Singapore(’06.11)
• Revaluation on the Korean Market• Increase of investment pool (e.g. Installment funds)
• Share of institution investors
*15.58 % (’03) 18.56%(’05)• Longer investment horizon
17
Bond Market
Steady annual increase
Issue 20 yr. treasury bonds
successfully
Outstanding amount of Issued Bonds
iii. Market Performance by Sector (2/5)
765.1838
0
250
500
750
1,000
USD billion
673.5
’04 ’05 ’07.1
18
Almost doubled in only 3 yrs since 2004
Daily Trading Volume of Foreign Exchange
USD billion
iii. Market Performance by Sector (3/5)
Foreign Exchange Market
Hong Kong (’04)
Singapore (’04)
22.3
102.0125.0
0
50
100
150
18.6
32.0
’04 ’05 ’06
19
Asset Management Market
No. of foreign asset mgt. companies in Korea : 6(’02) 14(’06)
Assets Under Management Pension Funds Operation
iii. Market Performance by Sector (4/5)
179.2
201.4259.7
0
100
200
300
USD billion
121.1
’03 ’04 ’05 ’06
0
100
200
300
400
USD billion
298.9315.9
378.9
172.0
’03 ’04 ’05 ’06(P)
20
iii. Market Performance by Sector (5/5)
Derivatives Market
Transaction Volume
18.0
38.0
0
10
20
30
40
USD Trillion/yr
25.7
’03 ’04 ‘05
Trading Volume
• KOSPI200 Futures : 4th in the World
* 1.10(’03) 1.92(’05)
• KOSPI200 Options : 1st in the World
* 13.59(’03) 30.33(’05)
21
iii. Market Performance by Sector (6/6)
Introduced in 2004
20 PEFs established (as of Nov. 2006)
PEF MarketPEF Market
Major vehicles• CRC, CRF, CRV, KAMCO
KAMCO play a critical role in the NPL market
Restructuring MarketRestructuring Market
NPL acquired(USD bn.)
NPL acquired(USD bn.)
NPL resolved(USD bn.)
NPL resolved(USD bn.)
39.7 39.7
30.2 30.2
Contracted (USD bn.)
Contracted (USD bn.)
4.9 4.9
Invested (USD bn.) Invested (USD bn.)
1.08 1.08
22
25
Financial Industry Status by Sector Financial Industry Status by Sector (end of 2006)(end of 2006)
Banking Securities Insurance Asset Mgt.
Total 18 54 51 49
Domestic 15 32 30 35
Foreign*3
22 21 14
* Criterion for foreign financial company : Over 50% share + the right of management
38
(Branch)
(Unit : No.)
III. Future Plans
i. Improvements of Financial Infrastructure(1/2)
Enact the ‘Enact the ‘Consolidated Capital Market Act’Consolidated Capital Market Act’
• Wait for the enactment by the National Assembly
Accelerate Comprehensive Financial DeregulationAccelerate Comprehensive Financial Deregulation
• Third round ‘Zero-Base Deregulation’ (40 Laws, 639 Tasks)
• Focus on 4 major function - Area of focus : business operation, corporate finance, consumer
protection, finance sanction
27
i. Improvements of Financial Infrastructure (2/2)
Innovate the Financial Supervisory System ContinuouslyInnovate the Financial Supervisory System Continuously• Encourage the use of no-action letter system
• Improve regulatory regime under the proposed ‘Consolidated Capital Market Act’
Execute Foreign Exchange Market LiberalizationExecute Foreign Exchange Market Liberalization
• Facilitate the rescheduled FX liberalization
• Promote internationalization of Korean Won, vitalize overseas investment
• Establish legal base for the ‘Financial Hub Initiative’
• Clarify the principle of enhancing transparency & accelerating competition in the financial market
Enact the ‘Financial Hub Promotion Act’ Enact the ‘Financial Hub Promotion Act’
28
ii. Development of Financial Markets(1/2)
• Promote competition in asset management business
• Increase outsourcing ratio of pension funds
• Activate retirement pension
• Promote competition in asset management business
• Increase outsourcing ratio of pension funds
• Activate retirement pension
AssetManageme
ntMarket
PEFMarket
• Increase the autonomy of PEF operation
• Attract more participants in PEF market (e.g. Venture capitals, insurance companies)
Investment
Banking
· Enlarge the size of securities companies
· Develop models for Korean investment
banking services
29
ii. Development of Financial Markets(2/2)
• Enlarge the issuance of long-term bonds
continuously
• Attract more foreign investors into the Korean bond
market (e.g. Arirang Bond)
• Enlarge the issuance of long-term bonds
continuously
• Attract more foreign investors into the Korean bond
market (e.g. Arirang Bond)
Bond
Market
DerivativeMarket
• Ease regulation on OTC derivative products * Positive system negative system
• Diversify the listed derivative products
RestructuringMarket
· Build information portal of restructuring markets
in Northeast Asia
· Foster leading market participants of the Northeast
Asian market
30
iii. Leading the Way in Northeast Asia
Attracting Foreign
Financial Institutions
• Strengthen the role of KIC
• Establish the International Financial Services
Center (IFSC)
• Promote foreign companies’ listing in KRX
• Have strategic alliances with overseas
Globalization of
Korea Exchange
Active Role in
Regional Finance Infra Project
• Export Korean financial IT / financial system
• Channel various types of funds (e.g. e-Asia Fund* (ADB), ODA)
31
New Business Opportunities
New Growth Engine for the
21st century
Financial Hub Strategy
Korean Economy Foreign Investors
Prosperity in the Future
33