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South Korea banking South Korea banking Document Transcript

  • A GLOBAL COUNTRY STUDY AND REPORT ON “BANKING INDUSTRY” Submitted toC K SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT IN PARTIAL FULFILLMENT OF THEREQUIREMENT 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
  • DECLARATION We, Abhay Dhami, Rashmi Nihalani, Vihangini Shah, KrutikaMohile, Harshil Shah, Maulik Shah hereby declare that the report for Global/Country Study Report entitled “Banking Industry ” in South Korea andIndia is a result of our own work and our indebtedness to other workpublications, references, if any, have been duly acknowledged.Abhay Dhami -Rashmi Nihalani -Vihangini Shah -Krutika Mohile -Harshil Modi -Maulik Shah -Place :Date :
  • PREFACEOne can’t swim only by reading a book on swimming. It must require a“practice”. Practice makes man perfect. Theory makes him thoughtful. Sotheoretical knowledge is only a half way in study network. If theoreticalknowledge aspects are planned in a better way give faithful results, sotheoretical knowledge should be supplemented by practical experience.The study of a country can give you a chance of learning the different aspectof the country which will be benefited to our learning about the country and itsfuture potential sector which can be benefited to start a new business or toexpand the existing business. And it will also benefit for a company to seeabout the future potential of their related area.The study of comparative analysis of the Banking industry between India andSouth Korea has considered different areas of the infrastructure industrywhich express the information about the facilities and recent trends in bankingindustry.In all it was great learning experience for us which will help us in our futurework areas.
  • 1) Economic Overview of the South KoreaCountry1.1 Demographic Profile of the South KoreaThe demographic features of the population of South Korea, includingpopulation density, ethnicity, education level, health of the populace, economicstatus, religious affiliations and other aspects of the population.BackgroundAlthough a variety of different Asian peoples had migrated to the KoreanPeninsula in past centuries, very few have remained permanently, so by 1990both South Korea and North Korea were among the worlds most ethnicallyhomogeneous nations. The number of indigenous minorities was negligible. InSouth Korea, people of foreign origin, including Chinese, Japanese, andWesterners, Southeast Asians, South Asians and others was a smallpercentage 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 languageand culture also are viewed as important elements in Korean identity. Untilrecently, the idea of multiracial or multiethnic nations, like the United States orIndia, struck many Koreans as odd or even contradictory.LanguagesThe Korean language is spoken by the vast majority of the population. Englishis widely taught in primary school, middle school and high school, andcontinues to be taught in higher education. The Japanese language, a legacyof the Japanese colonial rule of Korea and an official language until 1945, isnot used but has given some loan words to the Korean language, especiallyfor the older generation.
  • 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.)
  • 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)
  • 1.2 Economic overview of South KoreaSouth Korea is the 12th largest economy in the world, with a GDP (PPP) of1.459 trillion in 2010. South Korea is one of the fastest growing economiesfrom the 1960s to 1990s, and was termed as one of the Asian Tigers, alongwith Hong Kong, Singapore and Taiwan.South Koreas economic growth relied heavily on its exports, due to a lack ofnatural resources, and small domestic consumer market. This also makesthem the 7th largest exporter and 10th largest importer in the world. TheSouth Korean economy has also grown from one which is labor-intensive, toone which is more capital and technology-orientated.South Koreas growing economy is also one of the few countries whichavoided recession during the 2008 financial crisis. However, the countrysprogressive economic growth could be impeded by its continued tension withNorth Korea. Economic ties between North and South Korea were establishedin 1988, and trade volume rose to $1.82 billion in 2008, making South Koreathe second largest trading partner of North Korea, after China. But constantconflicts between the two nations have severed the economic ties betweenthem.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 othercountries, with the most important free trade agreement signed with the US in2007, the Korea-US Free Trade Agreement (KORUS FTA) which removed alltrade and investment barriers between 2 countries. This also made US theirsecond largest export market.
  • Economic GeographySouth Korea has a land area of 96,920 square km, with 16.58 percent ofarable land. The countrys main agricultural crops are rice and barley. Otherproduct supplied by South Korea includes vegetables, fruits, root crops, cattle,pigs, chicken, milk, eggs and fish. South Korea also enjoys few naturalresources such as coal, tungsten, graphite, molybdenum, lead andhydropower 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 largesteconomies after China and Japan. Though the Asian growth story mainlyrevolves around India and China, South Korea has remained a key player forthese countries as one of their major trading and investment partners. SouthKorea adopted outward-oriented economic policies with the beginning of itsfirst five-year economic development plan in 1962 which resulted in highgrowth and the integration of the Korean economy with the rest of the world.Subsequently, high and consistent economic growth made South Korea oneof the high-income economies in Asia. Korea is still growing at a faster ratecompared to other developed economies.India, on the other hand, adopted an import-substitution policy since itsindependence until the early 1990s. Since 1991, India has introduced wide-ranging economic policy reforms and is moving towards a market-driveneconomy. This has resulted 9oin consistent high economic growth over thelast one and a half decades, making India the 10th largest economy in theworld. 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 offormal diplomatic ties in 1973. The last three and a half decades have seenhigh-level exchanges and the signing of several crucial agreements leading toa continuous strengthening of bilateral economic relations.
  • 1.3 Overview different economic sector of SouthKoreaAs the worlds 12th largest economy with a GDP (PPP) of US$1.459 trillion in2010, South Korea has experienced huge economic growths from early 1960sto 1990s. Along with Hong Kong, Singapore and Taiwan, they are termed theAsian Tigers. Development in the industrial and manufacturing industriesattributes to the growth of South Koreas economy and is the major growthengine for its export-orientated economy.Over the years of economic progress, South Korea has transformed itseconomy from one which is labor intensive to one which is more capital andtechnology-orientated. Today, South Korea boasts as one of the top players inthe electronics, automobile, telecommunication and shipbuilding industries.South Koreas Industry SectorSouth Koreas agriculture contributes only 3 percent of the nations totalGDP in 2010 and employs 7.3 percent of the countrys workforce. Theagriculture in South Korea has shrunk significantly as the nation movestowards the urbanization and industrialization of the economy. Back in 1987,agricultural made up 12.3 percent of the nations total GDP, and employs 21percent of the workforce.Rice is the most important agriculture crop of South Korea. It made up 90percent of the total grain production, and supplies over 40 percent of thefarmers income. However, rising farmers wages and land values have maderice costly to produce. With 16.58 percent o arable land, South Koreasagriculture is also responsible for the production of crops such as barley,vegetables, fruits and production of cattle, pigs, chicken, milk, eggs and fish.
  • The industry of South Korea contributes 39.4 percent of the countrysGDP in 2010. The industry and manufacturing industries are the major growthengine for South Korea during its economic progress in the 1980s. SouthKoreas largest industries are electronics, automobiles, telecommunicationand shipbuilding.Electronics boosted the South Korean economy in the 1980s, bybecoming the worlds sixth largest manufacturer of electronic goods such ascolor televisions, microwave ovens, radio, watches and personal computers. .South Korea is also a major manufacturer of semiconductors, with SamsungElectronics and Nynex Semiconductor the global leaders in the production ofmemory chips.The automotive industry also plays a major role in the South Koreaneconomy today. It has grown into one of worlds largest automobileproducers, coming in 5th after the United States and Germany, with anestimate of 4.27 million automobile produced a year. Some of South Koreasinternational 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 20million fixed lines serving a 40 million-strong population. Today, South Koreaalso has the highest number of broadband users in the world. Thepresence of one of the fastest broadband networks in the world also permitse-commerce to grow.South Korea is a global player in the production of ships, with a 50.6percent share of the global shipbuilding market in 2008. Four of the worldslargest shipbuilding companies are from South Korea: Hyundai HeavyIndustries, Samsung Heavy Industries, Daewoo Shipbuilding & MarineEngineering and STX Offshore & Shipbuilding. Europes largest shipbuilder,STX Europe, is also owned by South Korea.
  • Services in South Korea contributes 57.6 percent of the nations totalGDP and employs 68.4 percent of the workforce.The government shifts its focus from manufacturing to services in 2009, andexperts predict that the services will be the driving force of South Koreaseconomy for the next few years.
  • 1.4 Overview of Business and trade atinternational levelSouth Korean economy and trade – a brief historyIn 1945, South Korean economy was mainly agricultural. In the followingdecades South Korea developed light industry, consumer products and heavyindustry. South Korean economy was further boosted in 1988, thanks to theSummer Olympics and in 2002 because of the Football World Cup, hosted inSouth Korea and Japan. At the same time the service industry grewimmensely.At the beginning of the 21st century, South Korea is leader in the IT sectorthanks to the aids received by its government. Leading firms in this sector areSamsung Electronics and LG Electronics.As for exports, South Korea has established itself as a main provider ofsemiconductors in addition to exporting various IT products. For the future, theSouth Korean government is beginning to invest in the robotic industry.Korean Trade and Business - Seoul & South KoreaSouth Korean economy is the 11th largest economy in the world and the thirdlargest in Asia. South Korea’s economical growth in the last 60 years hasbeen incredible; its GDP has grown from USD 100 in 1963 to over 20,000 in2007. However, many challenges lie ahead for the South Korean economy, assome reforms are needed, in order to solve some problems and make SouthKorean market more liberalized. Also, the South Korean government isworried by the increasing diversion of corporate investments to China andother countries with lower wages. Below we look at trade and business in SouthKorea, and the opportunities.
  • The main sectors of South Korean economy and tradeThe 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 countryis 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 steelsectors; shipbuilding; car manufacturing and electronics (especiallysemiconductors, 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 ExportImport – South Korea imports mainly mineral fuels, electric and mechanicalequipment, iron and steel. South Korea’s main trade partners for imports areChina, 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 Koreaexports are: electric and electronic goods, machinery, vehicles, ship andboats. For Freight Rates to South Korea RSJ International of the UK organizefreight to and from Korea, to locations around the world. Also interested inChinese business and trade?North and South Korea tradeRecently, in spite of the political disagreements, trade between North andSouth Korea has increased and big South Korean companies, such asHyundai, started ventures in North Korea.
  • 1.5 Overview of Industries trade and commerceThe 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 KoreaDevelopment Bank and Export-Import Bank of Korea engage in similaractivities. Using Government funds, foreign capital, or funds raised from theissue of special debentures, they provide medium- and long-term loans orcredit to key sectors such as (i) the export industry, (ii) parts and componentsindustry, (iii) high-technology business, and (iv)research and developmentprojects for developing new technologies.Claims on central government (annual growth as % ofbroad money)Claims on central government (IFS line 32AN..ZK) include loans to centralgovernment institutions net of deposits.Country 2006 2007 2008 2009 2010NameIndia 2 1 8 9 5South Korea 0 -4 3 2 0
  • Domestic credit provided by banking sector (% ofGDP)Domestic credit provided by the banking sector includes all credit to varioussectors on a gross basis, with the exception of credit to the centralgovernment, which is net. The banking sector includes monetary authoritiesand deposit money banks, as well as other banking institutions where dataare available (including institutions that do not accept transferable depositsbut do incur such liabilities as time and savings deposits).Examples of other banking institutions are savings and mortgage loaninstitutions and building and loan associations.Country 2006 2007 2008 2009 2010NameIndia 60.9 60.8 68.2 69.4 71.1South 96.4 98.4 109.4 109.4 103.2KoreaBank nonperforming loans to total gross loans (%)Bank nonperforming loans to total gross loans are the value of nonperformingloans divided by the total value of the loan portfolio (including nonperformingloans before the deduction of specific loan-loss provisions). The loan amountrecorded as nonperforming should be the gross value of the loan as recordedon the balance sheet, not just the amount that is overdue.
  • Country 2006 2007 2008 2009 2010NameIndia 3.3 2.5 2.3 2.3South 0.8 0.7 1.1 1.2 1.5KoreaBank 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. Capitalincludes tier 1 capital (paid-up shares and common stock), which is acommon feature in all countries banking systems, and total regulatory capital,which includes several specified types of subordinated debt instruments thatneed not be repaid if the funds are required to maintain minimum capitallevels (these comprise tier 2 and tier 3 capital).Total assets include all nonfinancial and financial assets.Country 2006 2007 2008 2009 2010NameIndia 6.6 6.4South 9.2 9 8.8 10.9KoreaExports of goods and services (% of GDP)Exports of goods and services represent the value of all goods and othermarket services provided to the rest of the world. They include the value ofmerchandise, freight, insurance, transport, travel, royalties, license fees, andother services, such as communication, construction, financial, information,business, personal, and government services. They exclude compensation ofemployees and investment income (formerly called factor services) andtransfer payments.
  • Country 2006 2007 2008 2009 2010NameIndia 21 20 23 20 18South 40 42 53 50KoreaReal interest rate (%)Real interest rate is the lending interest rate adjusted for inflation asmeasured by the GDP deflator.Country 2006 2007 2008 2009 2010NameIndia 4.5 6.9 6.2 4.3South 6.1 4.4 4.1 2.1 1.7KoreaStocks traded, turnover ratio (%)Turnover ratio is the total value of shares traded during the period divided bythe average market capitalization for the period. Average market capitalizationis calculated as the average of the end-of-period values for the current periodand the previous period.Country 2006 2007 2008 2009 2010NameIndia 93.1 84 85.2 119.3 75.6South 172.5 201.6 181.2 237.6 168.9Korea
  • 1.6 PESTEL ANALYSISIntroduction The country analysis report on South Koreaprovides a wide array of analytical inputs to analyze the country’sperformance, and the objective is to help the reader to make businessdecisions and prepare for the future. The report on South Korea analyzes thepolitical, economic, social, technological, legal and environmental (PESTLE)structure of South Korea. The report provides a holistic view of South Koreafrom historical, current and future perspective. Insightful analysis on criticalcurrent and future issues is presented through detailed SCPT (strengths,challenges, prospects and threats /risks) analysis for each of the PESTLEsegments. In addition, the PESTLE segments are supplemented with relevantquantitative data to support trend analysis. The PESTLE country analysisreport 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.HighlightsPESTLE analysis of South Korea identifies issues that affect the country’sperformance through the prism of current strengths (strengths), currentchallenges (weaknesses), future prospects (opportunities) and future risks(threats).The political landscape discusses the evolution of the political scenario inSouth Korea in different periods. The economic, social, foreign and defensepolicies are considered in the political landscape section. It also discusses theperformance of the country as per World Bank Governance Indicators.The economic landscape describes the evolution of the economy of SouthKorea in different periods. It also examines the country’s performance in termsof GDP growth, composition by sector (agriculture, industry and services),fiscal situation, international investment position, monetary situation, creditdisbursement, banking sector and employment. The economic landscape alsoexplains the financial system in the country, especially with regard to financialauthorities/regulators.The social landscape covers the demographics, education and healthcarescenario in South Korea. The social welfare policies of the government alongwith the country’s performance in terms of healthcare, income distribution andeducation are also provided.
  • The technological landscape discusses the structure and policies in terms ofIntellectual 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, legislationaffecting businesses, tax regulations, labor laws, trade regulations andcorporate governance in South Korea.The environmental landscape in South Korea discusses the environmentalregulations and policies of the country. The performance of the country interms of in terms of environmental indicators and impact of environmentalpolicies is also examined.The 1997–98 regional financial crises led to a short but sharp economicdownturn in 1998, with the economy contracting by around 6.7%. In 1999 and2000, the economy rebounded strongly on the back of the global recovery andimproved competitiveness resulting from the sharp currency devaluationduring 1997. The strong global outlook, combined with an accommodativemonetary stance and strong consumer spending growth, led to a robustgrowth rate of 6.9% in 2002. South Koreas economy grew at a slightly lowerrate of 4.7% in 2004. A supportive policy stance and benign externalconditions helped the economy to grow at 4.1% in 2005. Continued labormarket improvements, a strong employment scenario and increasing laborproductivity increased the country’s growth to about 5% in 2006. The creditcrisis of 2008–09 led to a global economic downturn, which affected SouthKoreas export market. Growth dropped to 2.2% in 2008, and the countryseconomy barely averted recession by expanding at 0.2% in 2009. Thecountry’s economy bounced back to register a growth rate of 6.1% in 2010.ConclusionBanking Sector Performance:Country ROA ROE COST/INCOME NPL/ASSET RATIO RATIOIndia 1.0 18.5 72 11Korea 0.5 10.9 78 20
  • Meaning of BankPeople need money to meet future expenses on marriage, higher education.of children, house building and other social functions. These are heavyexpenses, which can be met if some money is saved out of the presentincome. Saving of money is also necessary for old age when it may not bepossible for people to work and earn their living.So for saving money they use to hold money at their home, but it alsoinvolved the risk of loss by theft, robbery and other accidents.Thus, people were in need of a place where money could be saved safely andwould be available when required. Banks are such places where people candeposit their savings with the assurance that they will be able to withdrawmoney from the deposits whenever required.Bank is a lawful organization, which accepts deposits that can bewithdrawn on demand. It also lends money to individuals and businesshouses that need it.Banks give two assurances to the depositors –a). Safety of deposit, andb). Withdrawal of deposit, whenever neededOn 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 thepublic.
  • Bank of Korea Bank of Korea 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 ofSouth Korean won. It was established on June 12, 1950 at Seoul, SouthKorea.The Banks primary purpose is price stability. For that, the Bank targetsinflation. The 2010–12 targets are consumer price inflation of 3.0 ± 1%.
  • HistoryIn the year 1950 under the Bank of Korea Act, The Bank of Korea wasestablished on June 12.To tackle the severe inflation and financial disorder which brought an acuteshortage of resources and the division of the country.With this situation, discussions regarding the country on establishing a centralbank for the Republic of KoreaBased on this plan, the Bank of Korea Act was passed in May 1950 and theBank launched its operations as a central bank on June 12, 1950. It was givena wide range of functions in relation to monetary & financial policy, banksupervision, and foreign exchange policy.Primary PurposeThe 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 pricesrise, the same amount of money buys less than beforePrices 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 centralbanks in most countries. The Bank sets and announces an inflation target fora certain period and strives to meet this target.
  • OrganizationMonetary Policy CommitteeAt the top of the Bank of Koreas organization is the Monetary PolicyCommittee (Geumnyung Tonghwa Wiwonhoe). The Committees primefunction is the formulation of monetary and credit policies. More over, theCommittee deliberates and resolves on major matters concerning theoperations of the Bank of Korea.The Monetary Policy Committee is composed of seven members representingvarious 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 ServicesCommission;6) One member recommended by the Chairman of the Korea Chamber ofCommerce & Industry;7) One member recommended by the Chairman of the Korea Federation ofBanks.
  • Bank of Korea in SeoulThe current governor Kwon Hyouk-Se was named to his position in March2011 after a career of nearly three decades in finance-related positions in thegovernment.When the Monetary Policy Committee deems it necessary for theimplementation of monetary and credit policies, the bank of korea request theFSS to perform an examination of a bank and other financial institutions.
  • Functions1. Issuing Banknotes and CoinsThe Bank of Korea has the special right to issue banknotes and coins in theRepublic of Korea. Their dimensions, designs and denominations aredetermined by the Monetary Policy Committee with Government approval.The banknotes and coins thus issued have tender within the country for alltransactions, both public and private, without limitation.The Bank is not required to maintain any prescribed minimum ratio of gold orforeign exchange against its banknotes and coins issued, nor are anymaximum limit imposed on their issue.Currently, there are four different denominations of banknotes in circulationand we present in following table. Banknotes Bank coins ₩1,000 ₩1 ₩5,000 ₩5 ₩10,000 ₩10 ₩50,000 ₩50 ₩100There are 5 Banknotes and Six Bank coins in table. The Bank issuedredesigned ₩5,000 banknotes in January 2006, and redesigned ₩1,000 and₩10,000 banknotes in January 2007.
  • 2. Formulating and Implementing Monetary and Credit PolicyThe Bank conducts monetary policy with an emphasis on price stability,economic growth, financial asset and market conditions are also being takeninto consideration. The Bank has introduced an inflation targeting regime afterthe foreign currency crisis, and changed the monetary aggregate-orientedoperational framework to an interest rate-oriented framework in which its BaseRate forms its policy rate and operational target. The monetary and creditpolicy of bank is implemented through three instruments and they are:open market operations,lending and deposit facilities andReserve requirements,.3. Acting as the Bankers BankThe Bank of Korea makes loans to and receives deposits from banks, thusserving as the banker to the banking sector.Bank of Korea maintain current account for banking institution and they keptreserve deposit in these account to clear checks and settle inter bank balancethat arise from use of BOK.The Bank also conducts credit operations with banks by rediscountingcommercial bills or by extending loans against the maturities of up to oneyear.As they are the lender of last resort, the Bank may extend exceptional loansto banking in periods of serious emergency.4. Serving as the Governments BankThe Governments bank of Korea carries out various kinds of business for theGovernment in accordance with the Bank of Korea Act and other relevantlegislation.
  • The Bank, as the depositary of the Government, handles national revenuedeposits and also accepts deposits from, and makes loans to, governmentagencies.Furthermore, the Bank performs tasks related to the issuing, registering andredeeming of government securities. In addition, it may provide securitiescustodian services for the Government.The Bank may render credit to the Government as an overdraft on its accountor in other forms, and may directly subscribe to Government bond issues. Theinterest rates and other terms on such credits are determined by the MonetaryPolicy Committee.5. Operating and Managing Payment SystemsThe Bank of Korea provides three settlements likeCertain settlement services for the public convenience for the safety andefficiency of the nations payment as a whole andProvides settlement facilities to financial intermediaries across their currentaccounts with the Bank for final settlement purposes.Net settlements that arise from major retail payment systems such as billclearing and internet banking, payments for delivery versus payment(DVP)and payment versus payment(PVP) are made through the current accountswith the Bank.6. Managing Official Foreign Exchange ReservesThe Bank of Korea holds and manages Koreas official foreign exchangereserves. Its principal objectives in their management are to safeguard thevalue of the reserves and to meet the nations demand for foreign exchange.The Bank makes an effort to stabilize the FX market in consultation with theGovernment. While the Bank lets the exchange rate be freely determined byeconomic fundamentals as well as demand and supply of foreign exchangesin the market.
  • Furthermore the Bank acts as an agent for the Government in managing theForeign Exchange Stabilization Fund, with the object of stabilizing the foreignexchange market.7. Monitoring the Financial System and Assessing Its StabilityThe Bank of Korea monitors the financial system and assesses its stability. Itreviews domestic and overseas economic conditions, analyzes the financialmarket environment and examines the debt servicing capacity of thehousehold and business sectors to identify potential risk factors in thefinancial sector and to prevent them causing financial system unrest.The Bank also the managed the status of financial institutions and assessestheir soundness, based upon information collected from reports and surveyson them, while if necessary conducting joint examinations of these institutionswith the Financial Supervisory Service.In addition, the Bank publishes Financial Stability Report, which includes ananalysis of the current status and potential risks of the Korean financialsystem and an overall assessment of its stability.8. Carrying out Economic EducationThe Bank of Korea undertakes diverse activities to boost public awarenessabout the Bank and Korean economy like,Bank conducts economic education activities for youths, headed up by theEconomic Lecture for School programs. It also conducts economic lectureson request for universities, the military and police services, and non-government organizations.The Bank also runs a weekly BOK Friday Class program for the generalpublic. In addition, it holds an annual Monetary Policy Challenge for collegestudents to promote greater understanding of its role in formulating andimplementing monetary policy.Further, the Bank has operated a special website providing online economiceducation since September 2006. The website is composed of three sub-sitesfor children, youths and adults.
  • List of Banks in South Korea Central Bank (Bank of Korea) Nationwide Special Local Bank Banks BankKB Financial Group Korea Development Woori Finance Holdings Bank Co. LtdKookmin Bank Industrial Bank of Gwangju Bank (034)Shinhan Financial Korea Kyeongnam Bank(039)Group National Federation of Shinhan FinancialShinhan Bank Fisheries Cooperatives GroupHana Financial Group National Agricultural Jeju Bank (035)Hana Bank Cooperative Federation DGB Financial GroupKorea Exchange Group Export – Import Bank Daegu BankWoori Bank of Korea BS Financial Group
  • Types of Accounts:There are several different types of bank accounts available to citizens andforeigners alike. Most accounts do not require a minimum balance nor do theycharge any fees to maintain one.SavingsThese 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 offersinterest as an incentive to save. Generally, the longer the term of commitmentthe higher the interest rate will be. For shorter-term accounts, the interestrates are fairly low for savings accounts (about 2%-4%).Time DepositA time deposit account works more like a checking account. Some banks dooffer interest on time deposits, but they are generally lower than savingsaccounts.InstallmentThis account requires the client to make monthly installments/payments to thebank for interest. At maturity, the client will have made a profit. This works likea Certificate of Deposit, except the money does not have to be paid up frontbut in monthly deposits.Within a couple weeks of signing up for an account you will receive abankbook to record your transactions and a bank card. The bank card isstrictly an ATM card to withdraw money from any ATM machine. It cannot beused to charge purchases to your account.Services, Fees & InterestThe beauty about most Korean bank accounts is the lack of service fees thatthey charge. So don’t get sucked into paying extra fees because it is likelythat you won’t have to anywhere else.
  • If you would like to make some interest on your account, the best route to takewould be a savings account or an installment account. Interest is generallybetween 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, KoreanExchange Bank charges 10.5% for taxes on a Time Deposit account.Credit CardsInternational credit cards (American Express, Diners Club, MasterCard andVisa) can pretty much be used anywhere. However, only some ATM’s willaccept foreign credit/debit cards (look for machines correlated with Cirrus,Star, Interlink, Plus, etc). The bank card issued by your bank is not acredit/debit card, but an ATM card. It can only be used to withdraw cash frombank ATM machines. ATM machines are out of service after 11:00PM so planaccordingly when withdrawing cash.The Korea Travel Card (KTC)This is a multipurpose, pre-paid travel card sold by the Korean NationalTourism Office, Shinhan Card and the Shinhan Bank, only to foreign touristsor residents. This card provides discounts on currency charges, internationaland national calls and provides free travel insurance. The card can be boughtin denominations of KRW 100,000, 200,000, 300,000, and 500,000 or in acustomized amount between KRW 100.000 and 500,000. Direct debits & banktransfersSending Money HomeKoreans want you to spend your money in their country and therefore may putrestrictions on the amount of money you can transfer out. However, it is yourmoney and there are plenty of resources that allow you to send it home if youwish. Your local bank and other well-known companies such as WesternUnion and Money Gram are located all throughout Korea to provide theservices that you need.
  • Most banks offer services to transfer funds internationally for a small servicefee (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 transferringmoney because it is procedure for many banks to stamp it each time. Someinstitutions have recently established online banking services where you cando things like transfer money from the convenience of your computer. Sinceyou are charged by the Korean bank and your home bank each time youtransfer money, it is wise to send larger amounts of money fewer times.Choosing a bankMost banks in Korea offer the same services for the same price, your choiceshould depend more on other factors. If you plan to send most of your moneyhome, you should find a bank that has little or no restrictions on the amountyou can transfer. A transfer should take no longer than a couple days to aweek to arrive to your other account.
  • The Bank of KoreaGeneral FeaturesThe Bank of Korea was founded on June 12, 1950 under the Bank of KoreaAct. The Bank was originally established with a capital of 1.5 billion won, all ofwhich was subscribed by the Government, but the revision of the Bank ofKorea 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 ofprice stability. The Bank sets an inflation target in consultation with theGovernment and draws up and publishes an operational plan for monetarypolicy.The Bank performs the typical functions of a central bank: issuing bank notesand coins, formulating and implementing monetary and credit policy, servingas the bankers bank, and the Governments bank. In addition, the Bank ofKorea undertakes overall management and surveillance of the payment andsettlement systems, and manages the nations foreign exchange reserves. Italso monitors the financial system and assesses its stability.Policy ObjectivesThe Bank of Korea Act provides that the sole purpose of the Bank is tocontribute to the sound development of the national economy by pursuingprice stability through the formulation and implementation of efficientmonetary and credit policies. Since 1998, the Bank of Korea has employedinflation targeting, and set a target in consultation with the government.Recently, following the global financial crisis, the Bank of Korea has placedgreater emphasis on heightening the stability of the financial system. This hasinvolved vigilant monitoring and the preemptive supply of funds to troubledsectors. Notably, in the latter half of 2008, the Bank of Korea actively suppliedliquidity amounting to 19.5 trillion won in order to handle the credit crunch inthe domestic financial market, after Lehman Brothers collapse. In addition,
  • the Bank publishes Financial Stability Report and oversees the nationspayment and settlement systems to promote their safety and efficiency.OrganizationThe Bank of Koreas organization consists of the Monetary Policy Committee,the supreme policy-making body; the executive, which carries out the policiesformulated by the Monetary Policy Committee; and the Auditor.The Monetary Policy Committee as the policy decision-making body, has theright to deliberate and resolve on major matters concerning monetary andcredit policy and the operations of the Bank of Korea.The Monetary Policy Committee is composed of seven members representingvarious groups in the national economy, and includes the Governor and theSenior Deputy Governor of the Bank as ex officio members. The members areappointed by the President for four-year terms except the Senior DeputyGovernor whose term is three years. All members serve on a full-time basisand no member may be discharged from office against his or her will. TheGovernor serves concurrently as the Chairman of the Committee.The Committee generally convenes on the Thursdays of the second andfourth weeks of each month and holds extraordinary meetings as frequentlyas needed. Monetary policy is resolved and announced on the Thursday ofthe second week of every month. The minutes of each Committee meetingare announced in the Banks web-site on the first Tuesday after six weekshave passed from a meeting.Resolutions at a Monetary Policy Committee meeting are adopted by simplemajority when there are at least five members present. Any member maysubmit a proposal with the concurrence of at least one other member. TheChairman, however, can submit a proposal on his or her own motion.
  • QUESTIONS INDIA SOUTH KOREADecide the Type of There are several types There are same types ofBank Account you of bank accounts such bank account in Southwant to Open as Saving Account, Korea but there is no Recurring Account, joint account in South Fixed Deposit Account, Korea. Current Account and joint account. So a decision regarding the type of account to be opened must be taken.Approach any Bank of Once the type of Opening a local bankchoice & meet its account is decided, the account is quite easy toBank Officer person should approach do in South Korea a convenient bank. He whether you are a has to meet the bank foreigner or not. They officer regarding the are sensitive to their opening of the account. needs and some even The bank officer will have translators on-site provide a proposal form or documents in (Account Opening Form) languages other than to open bank account. Korean. However, if you do have a friend who can speak Korean, it may prove to be very helpful to have him/her accompany youFill up Bank Account The proposal form must On the form you willOpening Form - be duly filled in all have to fill out yourProposal Form respects. Necessary address in Korean, details regarding name, name, job or school and address, occupation and passport number or other details must be alien card number. You
  • filled in wherever must write down your required. Two or three name exactly as it is on specimen signatures are your passport. required on the When you have finished specimen signature writing down all your card. If the account is details give the form to opened in joint names, the staff and they will then the form must be give you a number. signed jointly. Now days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification.Give References for The bank normally The bank normallyOpening your Bank required references or required references orAccount introduction of the introduction of the prospective account prospective account holder by any of the holder by any of the existing account holders existing account holders for that type of account. for that type of account. The introducer The introducer introduces by signing his introduces by signing his specimen signature in specimen signature in the column meant for the column meant for the purpose The the purpose The reference or introduction reference or introduction is required to safeguard is required to safeguard the interest of the bank. the interest of the bank.Submit Bank Account The duly filled in The duly filled inOpening Form and proposal form must be proposal form must be submitted to the bank submitted to the bank
  • Documents along with necessary along with necessary documents. For e.g. in documents. For e.g. in case of a joint stock case of a joint stock company, the company, the application form must application form must accompany with the accompany with the Boards resolution to Boards resolution to open the account. Also open the account. Also certified copies of certified copies of articles and articles and memorandum of memorandum of association must be association must be produced. produced.Officer will verify your The bank officer verifies You will then have toBank Account the proposal form. He wait while they processOpening Form checks whether the form the form, usually about is complete in all 15 minutes but it respects or not. The depends on how busy accompanying they are. They will issue documents are verified. you your new bank card If the officer is satisfied, and passbook on the then he clears the spot. They will ask you proposal form. to check to make sure all the details are correct.Deposit initial amount After getting the You receive is a Woori Vin newly opened Bank proposal form cleared, Expat Check Card andAccount the necessary amount is Pass Book / Bank Book. deposited in the bank. The card can be used After depositing the overseas as it has the initial money, the bank Cirrus logo and it can provides a pass book, a also be used as a debit cheque book and pay in card. That means that
  • slip book in the case of you can pay for things insavings account. In the the shops using yourcase of fixed deposits, a card. Some of the cardsfixed deposit receipt is also offer T-money soissued. In the case of you can pay forcurrent account, a transportation. The bankcheque book and a pay book can be used forin slip book is issued. withdrawing orFor recurring account, depositing money intothe pass book and a pay your account from yourin slip book is issued. 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.
  • IntroductionFinancial Supervisory system in S. Korea prior to FSSKorea financial supervisory system was largely fragmented, with the banking,securities, insurance, and non-bank sectors individually managed andregulated by a separate agency. Further the authority of supervision was splitinto two governing entities,1] The supervisory agencies and2] The Ministry of Finance and Economy.Under this segregated supervisory system, the banking sector, the securitiessector, and the insurance sector was overseen by the ministry, and by theSecurities Supervisory Board .Establishment of Financial Supervisory Service (FSS)After the end of the 1980s which marked a time of diversification in thefinancial industry and businesses’ crossover into other financial sectors. Asopening of markets to foreign investments and the ongoing of globalizationthe financial environment changed considerably. The financial supervisorysystem of past, which include the banking, securities, and insurance sectorswere each regulated by their respective supervisory agencies, which was haslonger fit to the innovations in the financial environment. And as a result, thegovernment established Financial Reform which is said as the financialsupervisory system.Now the following are recommendations for the financial supervisory system: Consolidati n of the existing supervisory agencies into one organization ofor better dealing in business expansion into financial sectors, marketliberalization, and the rising uncertainty in the market; Establishment of financial supervisory authority which is independent frommacroeconomic, monetary and credit policies;
  •  Establishment of an autonomous financial supervisory authorityindependent from macroeconomic, monetary and credit policies;Major progressThe consolidation of the financial supervisory system helped Korea infollowing 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 eliminatinginsolvent financial companies and putting whole financial system back ontrack. 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 FunctionsMajor 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. 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 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 VisionPurposeThe purpose of the Financial Supervisory Service is to contribute to thegrowth of the national economy by:1) Promoting the advancement of the financial industry and the stability offinancial markets.2) Establishing sound credit order and fair financial transaction practices.3) Protecting financial consumers, such as depositors.VisionThe FSS adhere to a philosophy of a „client-focused mindset,‟ „high-levelof expertise ’and„financial supervision that builds the public trust.‟To realize its vision, the organization stresses five core values: clientorientation, professionalism, fairness, transparency, and accountability.
  • Current IssueEarly 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 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 Central Bank (Reserve Bank of India) Public Sector Foreign Sector Private SectorAllahabad Bank ABN-AMRO Bank HDFCBankBank of India Abu Dhabi ICICI Bank Commercial BankBank of Baroda Bank of Cevlon UTI BankCanara Bank Bank of Punjab Citi BankDena Bank Bank of Rajasthan Taib BAnk
  • Functions of an Indian BankFunctioning of a Bank is among the more complicated of corporateoperations. Since Banking involves dealing directly with money, governmentsin most countries regulate this sector rather stringently. In India, the regulationtraditionally has been very strict and in the opinion of certain quarters,responsible for the present condition of banks, where NPAs are of a very highorder.Banking Regulation Act of India, 1949 defines Banking as "accepting, for thepurpose of lending or investment of deposits of money from the public,repayable on demand or otherwise and withdraw able by cheques, draft, andorder or otherwise". Deriving from this definition and viewed solely from thepoint 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 Creation5. Acting as trustees6. Keeping valuables in safe custody7. Investment Decisions and analysis8. Government businessOther Services Offered by Banks
  • Role of Banks in Indian Economy 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 2004Gross domestic 108 126 141 135 127 147savingGross domestic 33.7% 34.4% 33.5% 32.6% 30.9% 29.3%saving/GDP(%)Demand deposits 25 31 37 35 38 47Saving deposits 48 81 117 123 144 173Time deposits 33 96 128 163 162 212 INDIA Year 1999 2000 2001 2002 2003 2004Gross domestic 90 88 107 105 114 120savingGross domestic 23.1% 21.5% 24.1% 23.4% 24.0% 24.0%saving/GDP(%)Demand deposits 26 28 29 30 31 35Time 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 check writing, M2); c: Time deposits, savings accounts or CD with a fixed term (M2). Structure of Banking Systems around the WorldCountry Bank Rank % of Bank Rank % of Rank % of Rank Net Rank Assets/GDP Assets Bank Bank Interest Government- Assets Assets Margin owned Foreign- in Top as % of Owned 3 Total Banks AssetsSouth 97.70 26 29.70 15 0.00 54 39.20 41 2.10 18KoreaIndia 47.55 46 80.00 1 0.00 53 34.60 44 2.78 29 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 WorldCountry Return Overall Return Overall Noninterest Overall Nonperforming Overall on Rank on Rank Revenue / Rank Loans as % of Rank Assets Equity Total Total Loans (ROA)% (ROE)% Revenue (%)South 1.42 10 23.13 5 27.50 28 13.60 41KoreaIndia 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. 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 SupervisionCountry Bank Single or Role of Scope of Degree of Supervisory Multiple Central Supervisory Supervisory Authority Supervisors Bank Authority IndependenceSouth Financial Multiple NCB BSI LowKorea Supervisory Commission, Ministry of Finance and EconomyIndia Reserve Bank of Single CB B Low India "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. Implementation of Banking SupervisionCountry Frequency of On- Number of Banking Assets per Site Exams at Large Professional Bank Professional and Mid-Size Banks Supervisors per Supervisory Staff Institution (US$ Billions)South Korea Annually 5.70 0.77India 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 SchemesCountry Date Coverage Coverage CO- Type of Risk- Types of Enacted/ Limits Ratio Insurance Fund Adjusted Membership Revised Limit/GDP Premiums per CapitaSouth 1966 N/A N/A No Funded No CompulsoryKoreaIndia 1961 $2,355 6 No Funded No Compulsory 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 Bank External Ratings Corporate External Audit Accounting and Creditor Governance Transparency Monitoring Index South Korea 3 4 2 9 India 4 3 1 8
  • An important dimension of corporate governance is the degree oftransparency that exists for the operations of a firm. The more comprehensiveand 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 bankaccounting practices; and (3) the evaluations by external rating agencies andincentives for creditors of the bank to monitor bank performance. An indexsummarizing country-specific component data on each of these threedimensions of corporate governance in banking is calculated, with highervalues 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-countryinformation presented throughout this chapter, the countries compared inTable show a relatively wide range of differences across corporategovernance characteristics.Capital Adequacy Ratio – International ComparisonYear 2002 2006 2007CountrySouth Korea 11.7 12.8 12.7India 12.0 12.3 12.3
  • Capital is essential and critical to the perpetual continuity of a bank as a goingconcern. On the recommendations of the Narasimham Committee (1992), RBIintroduced the internationally accepted Capital to Risk-Weighted Assets Ratio(CRAR), also called Capital Adequacy Ratio (CAR) system as a CapitalAdequacy measure to be achieved in a phased manner by the ScheduledCommercial banks operating in India.RBI issued the Capital Adequacy guidelines in April, 1992. As per theguidelines issued by RBI, banks in India, including foreign banks, wererequired to maintain a minimum capital to Risk weighted assets ratio (CRAR)norm of 8% in conformity with international standards.Domestic Bank Credit to the Private Sector(In real terms, in percent per annum)Year 1990-99 2000-04 2005 2006 2007CountrySouth 11.2 5.6 5.7 13.8 10.7KoreaIndia 4.5 12.5 20.2 18.5 14.7
  • Comparison Banks in Emerging Economies (Size of Profits-)Bank Country Size if PE Ratio Share Price Profits in as on 30 2008 Nov ($millions) 20009(In USD)State Bank India 3470 9.36 48.15of IndiaKookmin Korea 1714 8.6 19.01Bank
  • EXIM BANK EXTENDS US$ 20 MILLION CREDIT LINE TO KOREADEVELOPMENT BANKExport-Import Bank of India (EXIM Bank) has extended a credit line of US$ 20million to Korea Development Bank, to finance export of Indian manufacturedgoods and commodities to South Korea. Under this special creditarrangement 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 whichExim Bank has already obtained the permission of Reserve Bank.Under the above facility, Korea Development Bank will open a letter of creditfavoring an Indian exporter which would include a note that it is payable atsight to the beneficiary (Indian exporter) and that it is to be refinanced for aperiod of 6 months or 12 months, as may be the case. Korea DevelopmentBank will authorize Exim Bank to accept a time draft drawn on Exim Bank andreimburse a claiming bank in India and the L/C beneficiary i.e. Indian exporterwill get the proceeds at sight basis.Indo-Korea TradeIndias exports to South Korea were US$468 million during 1997-98 whichplummeted to US$ 307.46 million during 1998-99 before bouncing back toUS$ 429 million during 1999-2000. Out of total exports to South Korea, exportof manufactured goods amounted to US$ 294 million in 1997-98, US$ 208million in 1998-99 and US$ 326 million in 1999-2000. Major items of export toSouth Korea during 1999-2000 were drugs, pharmaceuticals and finechemicals, dyes intermediates, aluminum, machine tools, cotton yarn fabricsand made-ups, plastic and linoleum products, machinery and instruments.Exim Banks credit line is an initiative aimed at boosting Indias exports toSouth Korea.
  • Korea Development BankSince its establishment in 1954, the Korea Development Bank, the wholly-owned Government Bank, has been the nations leading provider of long-termfunds to major industrial projects. Moreover, since the financial crisis in Koreain late 1997, the Bank has been at the epicenter of the financial reform andbank-led restructuring of domestic corporations. KDB plays a leading role insupporting trade finance, as well. KDB was ranked the "Best Asian SovereignBorrower" by "Euro money" in June 1999. Also KDB with total asset base ofUS$ 66 billion on December 31, 1999, enjoys investment grade ratingsBaa2/BBB from Moodys and S&P, equivalent to the Republic of Koreasovereign rating.Korean investments in IndiaSouth 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 asLG, Samsung and Hyundai have not only established their presence in theIndian business scene but are also looking at diversifying their businessesinto different sectors.Korea accounts for about 2.64% of total FDI inflows, amounting to US$ 2.601billion (excluding amount approved for ADRs/ GDRs).The main sectors attracting foreign direct investment from South Korea aretransportation 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- areasinclude transportation industry, electrical equipment including computersoftware & electronics, chemicals other than fertilizers, metallurgical industriesand industrial machinery.
  • In addition to the above sectors, studies have also revealed that the twocountries 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, 9have been won by Korean companies in collaboration with Indian companiesor independently. Recently, Hyundai Heavy Industries have won two megaprojects including one pipeline project worth US$ 600 million.Indian investment in KoreaWith the growing amount of globalization and liberalization, not only Koreancompanies are making their presence felt in India, Indian firms too areestablishing themselves in Korea.Last year in February, Tata Motors, Mumbai signed an agreement foracquiring Daewoo Commercial Vehicles, Kunsan (South Korea) at a cost ofUS$ 102 million.The U.S. goods trade deficit with Korea was $13.1 billion in 2011, up $3.1billion from 2010. U.S. goods exports in 2011 were $43.5 billion, up 12.0percent 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 marketfor U.S. goods.
  • Business opportunities in future The Future of MoneyCompanies also love the idea of digital money because electronic paymentsare faster and much cheaper, although this doesn’t necessarily mean thatthey, or the retail banks, will pass on any time or cost savings to theircustomers. And as far as multinationals are concerned, the sooner there’s asingle global e-currency the better, because volatility in currency markets isyet another uncertainty to contend with.in South Korea, more people own cell phones than computers and globallysmart phones will outsell PCs by mid-2012. So it’s pretty easy to see whyphone companies could be the banks of the future. Or, as Bill Joy has pointedout, your phone will become your wallet, and a bank or Credit Card Companywill 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 Koreas 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 Spains 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 that is on a level with the brand recognition of the countrys conglomerates. The banking industry – and government – is fully focused on international expansion and lifting restrictions in order for it to happen. South Koreas 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 monthson the South Korean government’s efforts to boost the internationalcompetitiveness of the countrys financial institutions, to bring them up to themore sophisticated level of their international peers. The Financial Investment
  • Services and Capital Markets Act, which was introduced in 2009, did not havethe desired effect of creating a South Korean mega bank that could beglobally competitive, but there is now renewed focus on revising theregulations and establishing homegrown hedge funds.Future Ambitious plansFor example, the sale of Korea Exchange Bank (KEB) has been an ongoingissue for a number of years, having been subject to a few failed bids.Hana Financial Group, which is looking to increase its size and expandinternationally, announced in November 2010 its bid to acquire KEB, whichwould allow it to take advantage of KEB’s international network .Thisinternational outlook is shared by the major financial institutions in SouthKorea. As part of its vision to create a homegrown global corporate andinvestment bank, the government announced in June 2008 that it wouldprivatize Korea Development Bank, and in June 2009 KDB Financial Groupwas launched as part of this restructuring.KDB Financial Group has its international strategy mapped out. In thefirst stage it aims to become one of the top 20 banks in Asia, and thesecond stage to become one of the world‟s top 20 corporate andinvestment banks by the year 2020. KDB says that its initial focus will beon Asia as well as promoting its services in traditionally strong areassuch 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.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 Koreas 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 countrys 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 2007a 2008a 2009b 2010b 2011b 2012c 2013c 2014c 2015c 2016cBankperformanceBankingassets (%change inlocal currency) 10.9 20.3 -1.3 7.0 7.4 7.6 7.1 6.2 10.8 11.4Bank loans (%change inlocal currency) 13.1 14.6 1.8 7.0 7.4 9.6 10.1 10.2 14.8 15.4Bank deposits(% change inlocal currency) 6.4 16.5 8.2 6.9 7.3 9.5 9.0 8.1 12.7 13.3Net interestincome (%change inlocal currency) 8.3 8.8 -7.2 3.0 4.0 6.5 6.0 5.4 8.6 9.7Net margin(net interestincome/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 Unitforecasts.Source: Economist Intelligence Unit. The FSS would like to see further consolidation of South Koreas financial institutions. The July 2011 edition of The Banker, a UK-based magazine, showed that only nine local lenders are ranked among the worlds 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 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 governments 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 countrys 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.
  • ConclusionKorea has seen a rapid financial development in the past decade in line withfinancial liberalization policies that the government rigorously pursued. Thegovernment’s ambition to make Korea a financial hub in Northeast Asiasupported by the self-serving financial industry pushed the financial expansionfar beyond the ability of the Korean economy to deal with risks and dangersinherent in financial development. Eventually, the Korean financial sector hasbecome 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 efficientallocation of capital and smooth external shocks proved to be an illusion.Strong foreign presence in the Korean financial markets at best helpedshareholder capitalism to gain a foothold in Korea and mass enthusiasm forshares broke out that the Korean society has never seen before. Resultingstock market boom, though, has not served to promote corporateinvestments. The increased foreign bank entry has no doubt generated profit-oriented climate in the Korean banking sector and has played a role astrendsetters for the operations of domestic counterparts. But in foreign banks,business strategy determined by their headquarters focuses on opportunitiesto maximize profits without reflecting the overall condition of the Koreaneconomy, thus substantially contributing to market instability.Furthermore, focus on profit maximization and increased market competitionbetween domestic and foreign banks as well as between banks and NBFIs didnot improve efficiency, but aggravated distortion in capital allocation. Itsoutcomes were household debt-driven asset bubbles and heightened FXmarket volatility which became major threats to the overall economy. Anothernovelty from the ongoing financial liberalization was that economic policieshas increasingly held captive to dynamics of financial expansion, facing thegovernment with a daunting task of managing economic dilemma.
  • The financial hub project, the major driving force of financial liberalizationsince 2004, runs increasingly encounter to the overriding objective of Korea’seconomic 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 strategiesand is more likely to opt for export competitiveness and currency stabilitytightening capital controls. Recently the Korean government stepped upcapital controls by restoring a tax on foreign bond purchases and imposing alevy on non-deposit foreign currency debt held by domestic and foreign bankbranches. Those measures are violating commitments under the currentGATS and in FTAs with US and EU which the Korean government alreadysigned. The Korean government’s determined action for capital controls wasencouraged by the G20 Seoul Summit agreement in November 2010 thatgave emerging markets the green light to use capital controls to deal withvolatility in their currencies. It just jettisoned its commitment to current WTOrules and provisions in FTAs arguing that the G20 agreement stands aboveother rules. Korea’s relentless efforts in the past decade to emulate US-stylefinancial system following neoliberal orthodoxy have failed to achieve thedesired results. Negative effects of financial liberalization outweighed positiveeffects. Most critical was that the Korean banking sector has receded from itscore function of financial intermediary. Despite rapid expansion of the bankingindustry with its strong and well-established nationwide branch networks ahuge vacuum of financial services to marginalized 50 families and SMEs hasemerged which could be only partly filled by the state-owned policy banks. Italso brought about a different kind of crisis-prone financial system.As a result of ongoing consolidation process commercial banks have growntoo big to fail. This combined with pervasive self-serving behavior, posessignificant threat to financial stability. Paradoxically, the more progress offinancial liberalization, the more government intervention is required toalleviate market deficiencies and correct market failure in crisis situation.Korea needs fundamental rethinking of financial development, shifting policyparadigm from unmanageable financial liberalization to strengthening bank’sbasic role of stable financial intermediation and promoting financial inclusionof marginalized families and SMEs.
  • The Narasimham Committee has presented a detailed analysis of variousproblems and challenges facing the Indian banking system and made wide-ranging recommendations for improving and strengthening its functions.IntroductionThe 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 committeechaired by M. Narasimham, former RBI Governor in order to review theFinancial System viz. aspects relating to the Structure, Organizations andFunctioning of the financial system. The guidelines that were issuedsubsequently 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 officersvii. Inspection by supervisory authorities based essentially on the internal audit and inspection reportsviii. 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
  • Reduction of SLR and CRRThe Narasimham Committee had argued for reductions in SLR on thegrounds that the stated government objective of reducing the fiscal deficits willobviate the need for a large portion of the current SLR. Similarly, the need forthe use of CRR to control secondary expansion of credit would be lesser in aregime of smaller fiscal deficits. The committee offered the route of OpenMarket Operations (OMO) to the Reserve Bank of India for further monetarycontrol beyond that provided by the (lowered) SLR and CRR reserves.The arguments for higher or lower SLR and CRR ratios stem from twodifferent perspectives one which favors the banks, and the other which favorsthe bank reserves as a monetary policy instrument. The bank perspectiveseeks to maximize "lendable" resources, the banks control over resourcedeployment, and returns to the banks from the "preempted" funds.Some problems with the stated aim of reducing SLR and CRRare: 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.
  • Investment under Automatic Route with repatriation benefitsNon Resident Indians (NRIs),Person of Indian Origin (PIOs) andOverseas Corporate Bodies (OCBs) can invest in shares / convertibledebentures of Indian companies under the Automatic Route without obtainingGovernment or RBI permission except for a few sectors where ForeignInvestment Promotion Board (FIPB) / SIA permission is necessary, or wherethe investment can be made only up to a certain percentage of paid upcapital.Investment with Government approvalInvestments not eligible under the Automatic Route are considered by theFIPB, a high Powered inter-ministerial body under the chairmanship ofSecretary, Department of Industrial Policy & Promotion, SIA, subject tosectoral 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 / SharesInvesting in Korea: Asias New HubKorea is known as a world-class industrial base that includes both traditionalsteel-making and cutting-edge high-tech consumer products. Hence evenKorean companies are far more advanced than China or India.During the last 20 years, Korean companies have also matched theirsometimes better-known Japanese rivals.If yesterday belonged to the Sony Walkman and PlayStation, today belongs toSamsungs dazzling array of high tech gadgetry.Today Korea is positioning itself as the hub of Asia: a financial hub, a logisticshub, 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. Koreas popular culture is also fast becomingsynonymous with “cool” across Asia. Korean TV and pop stars are thefavorites of teenagers throughout China, Thailand and Hong Kong.
  • Executive summaryThe executive summary of South Korea and Indian Banking sector. We haveworked in this Global Project about the Economic overview of South Koreaand India, and also different banking parameters as per the secondary dataavailable.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. o South Korea has a land area of 96,920 square km, with 16.58 percent of arable land. The countrys 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 Koreas Industry Sector:- South Koreas agriculture contributes only 3 percent of the nations total GDP in 2010 and employs 7.3 percent of the countrys workforce. o The industry of South Korea contributes 39.4 percent of the countrys 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 worlds sixth largest manufacturer of electronic goodso 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 nations total GDP and employs 68.4 percent of the workforce. Overview of Business and trade at international levelo South Korean economy and trade – a brief history : 1945, South Korean economy was mainly agricultural. In the following decades 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 Exporto Import – South Korea imports mainly mineral fuels, electric and mechanical equipment, iron and steelo 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 commerceo 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 ANALYSISo 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).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 stabilityo 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. 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 Banko Issuing Banknotes and Coinso Formulating and Implementing Monetary and Credit Policyo . Acting as the Bankers Banko Serving as the Governments Banko Operating and Managing Payment Systemso Managing Official Foreign Exchange Reserveso Monitoring the Financial System and Assessing Its Stabilityo Carrying out Economic EducationBanks of south korea central banko Nationwise banko Special banko Local bank
  • Types of Accounts: o Savings o Time Deposit o Installment o Services, Fees & Interest o Credit Cards o The Korea Travel Card (KTC) o Sending Money HomeThe Bank of Korea policy objectiveThe Bank of Korea Act provides that the sole purpose of the Bank is tocontribute to the sound development of the national economy by pursuingprice stability through the formulation and implementation of efficientmonetary and credit policies.Recently, following the global financial crisis, the Bank of Korea has placedgreater emphasis on heightening the stability of the financial system. Organization The Monetary Policy Committee as the policy decision-making body, hasthe right to deliberate and resolve on major matters concerning monetary andcredit policy and the operations of the Bank of Korea.Resolutions at a Monetary Policy Committee meeting are adopted by simplemajority when there are at least five members present. Any member maysubmit 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. Establishment of Financial Supervisory Service (FSS)After the end of the 1980s which marked a time of diversification in thefinancial industry and businesses’ crossover into other financial sectors.Introduction to Indian BanksWith the ongoing financial depression, the position of banks have become allthe more important in the course of working of the money market and hencethe economy of a nation. Banks over the years have become a major aspectof an economy. However, over time banks have transformed from merelymoney generating organizations to a multi tasking entity.Types of Indian banks: o Central bank o Public sector o Private sector o Foreign sectorFunctions 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 Creation5. Acting as trustees6. Keeping valuables in safe custody
  • 7. Investment Decisions and analysis8. Government businessKorea Development BankSince its establishment in 1954, the Korea Development Bank, the wholly-owned Government Bank, has been the nations leading provider of long-termfunds to major industrial projects.Korean investments in IndiaKorea accounts for about 2.64% of total FDI inflows, amounting to US$ 2.601billion (excluding amount approved for ADRs/ GDRs).The main sectors attracting foreign direct investment from South Korea aretransportation 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 KoreaWith the growing amount of globalization and liberalization, not only Koreancompanies are making their presence felt in India, Indian firms too areestablishing themselves in Korea.The U.S. goods trade deficit with Korea was $13.1 billion in 2011, up $3.1billion from 2010. U.S. goods exports in 2011 were $43.5 billion, up 12.0percent 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 marketfor 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 actionFuture Ambitious plansBanking more of an opportunity than a challenge in IndiaCONCLUSIONEconomic relations between India-Korea have strengthened over the years.Currently the trade and investment between the two countries is lowcompared to the size and structural complementarities of the two economies.There has been changing demand structures and comparative advantages ofboth economies in complementary sectors and so the trade between the twocountries increases.India’s exports mainly low value-added and industrial products while India’simports from Korea largely consist of relatively high value-added products.Comparative advantage at both the aggregated and disaggregated levelsshows that Korea has been specializing in a few products which are highlycompetitive as India’s exports have been more diversified.Now a day’s foreign investment from Korea has increased over the years sothe share in total FDI inflows to India has declined. In addition Koreaninvestment is concentrated in a few sectors such as the electrical equipmentand 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 requiresfinancial 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, peggedexchange rate, current and capital account restrictions. Various reforms haveensured that the markets have made the transition to a regime of marketdetermined interest and exchange rates, price based instruments of monetary
  • policy, current account convertibility and phased liberalization of the capitalaccount.The rise in the proportion of portfolio investment has also imparted increasedvolatility to the total capital flows, which in turn, increases the volatility of theexchange rate. While the RBI has been playing an important role in thestabilization of capital flows via sterilization activities, with increased capitalliberalization and global integration, India is now exposed to the volatility offoreign capital flows and, in general, that of the international financialenvironment.
  • `BIBILIOGRAPHYhttp://eng.bok.or.kr/broadcast.action?menuNaviId=1628http://www.korea4expats.com/article-opening-a-bank-account.htmlhttp://www.theasianbanker.com/bankmetrics/ab500/2011-2012/asia-pacific-largest-bankshttp://ecos.bok.or.kr/flex/EasySearch_e.jsphttp://www.theasianbanker.com/#indiahttp://ecos.bok.or.kr/jsp/use/economyinfo_e/InSideEcoInfo.jsp