south korea banking
DESCRIPTION
TRANSCRIPT
A
GLOBAL COUNTRY STUDY AND REPORT
ON
“BANKING INDUSTRY”
Submitted to
C K SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT
IN PARTIAL FULFILLMENT OF THE
REQUIREMENT OF THE AWARD FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
Under
Gujarat Technology University
UNDER THE GUIDANCE OF
Mr. Nirav Majmudar
(Asso.Professor, CKSVIM, Vadodara)
Submitted by:
Abhay Dhami- 73
Rashmi Nihalani- 74
Vihangini Shah- 75
Krutika Mohile- 76
Harshil Modi- 77
Maulik Shah- 78
M.B.A –SEMESTER IV
C K Shah Vijapurwala Institute of Management
M.B.A PROGRAMME
Affiliated to Gujarat Technological University
Ahmedabad
April 2012
DECLARATION
We, Abhay Dhami, Rashmi Nihalani, Vihangini Shah, Krutika
Mohile, Harshil Shah, Maulik Shah hereby declare that the report for Global/
Country Study Report entitled “Banking Industry ” in South Korea and
India is a result of our own work and our indebtedness to other work
publications, references, if any, have been duly acknowledged.
Abhay Dhami -
Rashmi Nihalani -
Vihangini Shah -
Krutika Mohile -
Harshil Modi -
Maulik Shah -
Place :
Date :
PREFACE
One can’t swim only by reading a book on swimming. It must require a
“practice”. Practice makes man perfect. Theory makes him thoughtful. So
theoretical knowledge is only a half way in study network. If theoretical
knowledge aspects are planned in a better way give faithful results, so
theoretical knowledge should be supplemented by practical experience.
The study of a country can give you a chance of learning the different aspect
of the country which will be benefited to our learning about the country and its
future potential sector which can be benefited to start a new business or to
expand the existing business. And it will also benefit for a company to see
about the future potential of their related area.
The study of comparative analysis of the Banking industry between India and
South Korea has considered different areas of the infrastructure industry
which express the information about the facilities and recent trends in banking
industry.
In all it was great learning experience for us which will help us in our future
work areas.
1) Economic Overview of the South Korea Country
1.1 Demographic Profile of the South Korea
The demographic features of the population of South Korea, including
population density, ethnicity, education level, health of the populace,
economic status, religious affiliations and other aspects of the population.
Background
Although a variety of different Asian peoples had migrated to the Korean
Peninsula in past centuries, very few have remained permanently, so by 1990
both South Korea and North Korea were among the world's most ethnically
homogeneous nations. The number of indigenous minorities was negligible. In
South Korea, people of foreign origin, including Chinese, Japanese, and
Westerners, Southeast Asians, South Asians and others was a small
percentage of the population whose residence was generally temporary.
Koreans tend to equate nationality or citizenship with membership in a single,
homogeneous ethnic group or "race" (minjok, in Korean). A common language
and culture also are viewed as important elements in Korean identity. Until
recently, the idea of multiracial or multiethnic nations, like the United States or
India, struck many Koreans as odd or even contradictory.
Languages
The Korean language is spoken by the vast majority of the population. English
is widely taught in primary school, middle school and high school, and
continues to be taught in higher education. The Japanese language, a legacy
of the Japanese colonial rule of Korea and an official language until 1945, is
not used but has given some loan words to the Korean language, especially
for the older generation.
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 Korea
South Korea is the 12th largest economy in the world, with a GDP (PPP) of
1.459 trillion in 2010. South Korea is one of the fastest growing economies
from the 1960s to 1990s, and was termed as one of the Asian Tigers, along
with Hong Kong, Singapore and Taiwan.
South Korea's economic growth relied heavily on its exports, due to a lack of
natural resources, and small domestic consumer market. This also makes
them the 7th largest exporter and 10th largest importer in the world. The
South Korean economy has also grown from one which is labor-intensive, to
one which is more capital and technology-orientated.
South Korea's growing economy is also one of the few countries which
avoided recession during the 2008 financial crisis. However, the country's
progressive economic growth could be impeded by its continued tension with
North Korea. Economic ties between North and South Korea were established
in 1988, and trade volume rose to $1.82 billion in 2008, making South Korea
the second largest trading partner of North Korea, after China. But constant
conflicts between the two nations have severed the economic ties between
them.
South Korea is also a member of world organizations including the G-20,
APEC, OECD and WTO. It has also signed free trade agreements with other
countries, with the most important free trade agreement signed with the US in
2007, the Korea-US Free Trade Agreement (KORUS FTA) which removed all
trade and investment barriers between 2 countries. This also made US their
second largest export market.
Economic Geography
South Korea has a land area of 96,920 square km, with 16.58 percent of
arable land. The country's main agricultural crops are rice and barley. Other
product supplied by South Korea includes vegetables, fruits, root crops, cattle,
pigs, chicken, milk, eggs and fish. South Korea also enjoys few natural
resources such as coal, tungsten, graphite, molybdenum, lead and
hydropower potential.
Asia has become the growth center of the world economy in recent years.
Within the region, India and South Korea are the third and fourth largest
economies after China and Japan. Though the Asian growth story mainly
revolves around India and China, South Korea has remained a key player for
these countries as one of their major trading and investment partners. South
Korea adopted outward-oriented economic policies with the beginning of its
first five-year economic development plan in 1962 which resulted in high
growth and the integration of the Korean economy with the rest of the world.
Subsequently, high and consistent economic growth made South Korea one
of the high-income economies in Asia. Korea is still growing at a faster rate
compared to other developed economies.
India, on the other hand, adopted an import-substitution policy since its
independence until the early 1990s. Since 1991, India has introduced wide-
ranging economic policy reforms and is moving towards a market-driven
economy. This has resulted 9oin consistent high economic growth over the
last one and a half decades, making India the 10th largest economy in the
world. At present, India is the second fastest growing economy in the world.
Both India and Korea have been getting integrated with the world economy,
enhancing their role in the international economic order.
India and Korea have shared a close relationship since the establishment of
formal diplomatic ties in 1973. The last three and a half decades have seen
high-level exchanges and the signing of several crucial agreements leading to
a continuous strengthening of bilateral economic relations.
1.3 Overview different economic sector of South Korea
As the world's 12th largest economy with a GDP (PPP) of US$1.459 trillion in
2010, South Korea has experienced huge economic growths from early 1960s
to 1990s. Along with Hong Kong, Singapore and Taiwan, they are termed the
Asian Tigers. Development in the industrial and manufacturing industries
attributes to the growth of South Korea's economy and is the major growth
engine for its export-orientated economy.
Over the years of economic progress, South Korea has transformed its
economy from one which is labor intensive to one which is more capital and
technology-orientated. Today, South Korea boasts as one of the top players in
the electronics, automobile, telecommunication and shipbuilding industries.
South Korea's Industry Sector
South Korea's agriculture contributes only 3 percent of the nation's total
GDP in 2010 and employs 7.3 percent of the country's workforce. The
agriculture in South Korea has shrunk significantly as the nation moves
towards the urbanization and industrialization of the economy. Back in 1987,
agricultural made up 12.3 percent of the nation's total GDP, and employs 21
percent of the workforce.
Rice is the most important agriculture crop of South Korea. It made up 90
percent of the total grain production, and supplies over 40 percent of the
farmers' income. However, rising farmers' wages and land values have made
rice costly to produce. With 16.58 percent o arable land, South Korea's
agriculture is also responsible for the production of crops such as barley,
vegetables, fruits and production of cattle, pigs, chicken, milk, eggs and fish.
The industry of South Korea contributes 39.4 percent of the country's
GDP in 2010. The industry and manufacturing industries are the major growth
engine for South Korea during its economic progress in the 1980s. South
Korea's largest industries are electronics, automobiles, telecommunication
and shipbuilding.
Electronics boosted the South Korean economy in the 1980s, by
becoming the world's sixth largest manufacturer of electronic goods such as
color televisions, microwave ovens, radio, watches and personal computers. .
South Korea is also a major manufacturer of semiconductors, with Samsung
Electronics and Nynex Semiconductor the global leaders in the production of
memory chips.
The automotive industry also plays a major role in the South Korean
economy today. It has grown into one of world's largest automobile
producers, coming in 5th after the United States and Germany, with an
estimate of 4.27 million automobile produced a year. Some of South Korea's
international automobile brands include Hyundai, Kia and Renault.
From a slow start of two million subscribers to a current high of 40 million,
mobile telephone is the fastest growing area in telecoms, going beyond the 20
million fixed lines serving a 40 million-strong population. Today, South Korea
also has the highest number of broadband users in the world. The
presence of one of the fastest broadband networks in the world also permits
e-commerce to grow.
South Korea is a global player in the production of ships , with a 50.6
percent share of the global shipbuilding market in 2008. Four of the world's
largest shipbuilding companies are from South Korea: Hyundai Heavy
Industries, Samsung Heavy Industries, Daewoo Shipbuilding & Marine
Engineering and STX Offshore & Shipbuilding. Europe's largest shipbuilder,
STX Europe, is also owned by South Korea.
Services in South Korea contributes 57.6 percent of the nation's total
GDP and employs 68.4 percent of the workforce.
The government shifts its focus from manufacturing to services in 2009, and
experts predict that the services will be the driving force of South Korea's
economy for the next few years.
1.4 Overview of Business and trade at international level
South Korean economy and trade – a brief history
In 1945, South Korean economy was mainly agricultural. In the following
decades South Korea developed light industry, consumer products and heavy
industry. South Korean economy was further boosted in 1988, thanks to the
Summer Olympics and in 2002 because of the Football World Cup, hosted in
South Korea and Japan. At the same time the service industry grew
immensely.
At the beginning of the 21st century, South Korea is leader in the IT sector
thanks to the aids received by its government. Leading firms in this sector are
Samsung Electronics and LG Electronics.
As for exports, South Korea has established itself as a main provider of
semiconductors in addition to exporting various IT products. For the future,
the South Korean government is beginning to invest in the robotic industry.
Korean Trade and Business - Seoul & South Korea
South Korean economy is the 11th largest economy in the world and the third
largest in Asia. South Korea’s economical growth in the last 60 years has
been incredible; its GDP has grown from USD 100 in 1963 to over 20,000 in
2007. However, many challenges lie ahead for the South Korean economy, as
some reforms are needed, in order to solve some problems and make South
Korean market more liberalized. Also, the South Korean government is
worried by the increasing diversion of corporate investments to China and
other countries with lower wages. Below we look at trade and business in South
Korea, and the opportunities.
The main sectors of South Korean economy and trade
The biggest part of South Korean GDP is made up by the service industry
(about 55%), especially department stores, store chains and supermarkets.
The second most important South Korean trade sector, for which this country
is now famous all over the world, is the manufacturing sector (more than 40%
of the country’s GDP). South Korean industries include: the textile and steel
sectors; shipbuilding; car manufacturing and electronics (especially
semiconductors, of which South Korea is the world’s largest producer). Lastly,
agriculture contributes only to a small part of South Korean GDP (about 4%).
The main crop is rice, followed by other cereals, like barley, wheat, corn,
soybeans and by other products such as chili peppers, sweet potatoes,
Chinese cabbage, apples and pears.
South Korean international trade – Import and Export
Import – South Korea imports mainly mineral fuels, electric and mechanical
equipment, iron and steel. South Korea’s main trade partners for imports are
China, Japan, the European Union and the USA.
Export – South Korea’s most important export partners are again China,
Japan, the European Union and the USA, and the products that South Korea
exports are: electric and electronic goods, machinery, vehicles, ship and
boats. For Freight Rates to South Korea RSJ International of the UK organize
freight to and from Korea, to locations around the world. Also interested in
Chinese business and trade?
North and South Korea trade
Recently, in spite of the political disagreements, trade between North and
South Korea has increased and big South Korean companies, such as
Hyundai, started ventures in North Korea.
1.5 Overview of Industries trade and commerce
The Korean financial industry consists of three groups: (i) a central bank
(BOK); (ii) deposit money banks, including commercial and specialized banks;
and (iii) nonbank financial institutions (NBFIs), which include development,
savings, investment, insurance, and other institutions. The Korea
Development Bank and Export-Import Bank of Korea engage in similar
activities. Using Government funds, foreign capital, or funds raised from the
issue of special debentures, they provide medium- and long-term loans or
credit to key sectors such as (i) the export industry, (ii) parts and components
industry, (iii) high-technology business, and (iv)research and development
projects for developing new technologies.
Claims on central government (annual growth as % of
broad money)
Claims on central government (IFS line 32AN..ZK) include loans to central
government institutions net of deposits.
Country
Name
2006 2007 2008 2009 2010
India 2 1 8 9 5
South Korea 0 -4 3 2 0
Domestic credit provided by banking sector (% of GDP)
Domestic credit provided by the banking sector includes all credit to various
sectors on a gross basis, with the exception of credit to the central
government, which is net. The banking sector includes monetary authorities
and deposit money banks, as well as other banking institutions where data
are available (including institutions that do not accept transferable deposits
but do incur such liabilities as time and savings deposits).
Examples of other banking institutions are savings and mortgage loan
institutions and building and loan associations.
Country
Name
2006 2007 2008 2009 2010
India 60.9 60.8 68.2 69.4 71.1
South
Korea
96.4 98.4 109.4 109.4 103.2
Bank nonperforming loans to total gross loans (%)
Bank nonperforming loans to total gross loans are the value of nonperforming
loans divided by the total value of the loan portfolio (including nonperforming
loans before the deduction of specific loan-loss provisions). The loan amount
recorded as nonperforming should be the gross value of the loan as recorded
on the balance sheet, not just the amount that is overdue.
Country
Name
2006 2007 2008 2009 2010
India 3.3 2.5 2.3 2.3
South
Korea
0.8 0.7 1.1 1.2 1.5
Bank capital to assets ratio (%)
Bank capital to assets is the ratio of bank capital and reserves to total assets.
Capital and reserves include funds contributed by owners, retained earnings,
general and special reserves, provisions, and valuation adjustments. Capital
includes tier 1 capital (paid-up shares and common stock), which is a
common feature in all countries' banking systems, and total regulatory capital,
which includes several specified types of subordinated debt instruments that
need not be repaid if the funds are required to maintain minimum capital
levels (these comprise tier 2 and tier 3 capital).
Total assets include all nonfinancial and financial assets.
Country
Name
2006 2007 2008 2009 2010
India 6.6 6.4
South
Korea
9.2 9 8.8 10.9
Exports of goods and services (% of GDP)
Exports of goods and services represent the value of all goods and other
market services provided to the rest of the world. They include the value of
merchandise, freight, insurance, transport, travel, royalties, license fees, and
other services, such as communication, construction, financial, information,
business, personal, and government services. They exclude compensation of
employees and investment income (formerly called factor services) and
transfer payments.
Country
Name
2006 2007 2008 2009 2010
India 21 20 23 20 18
South
Korea
40 42 53 50
Real interest rate (%)
Real interest rate is the lending interest rate adjusted for inflation as
measured by the GDP deflator.
Country
Name
2006 2007 2008 2009 2010
India 4.5 6.9 6.2 4.3
South
Korea
6.1 4.4 4.1 2.1 1.7
Stocks traded, turnover ratio (%)
Turnover ratio is the total value of shares traded during the period divided by
the average market capitalization for the period. Average market capitalization
is calculated as the average of the end-of-period values for the current period
and the previous period.
Country
Name
2006 2007 2008 2009 2010
India 93.1 84 85.2 119.3 75.6
South
Korea
172.5 201.6 181.2 237.6 168.9
1.6 PESTEL ANALYSIS
Introduction
The country analysis report on South Korea
provides a wide array of analytical inputs to analyze the country’s
performance, and the objective is to help the reader to make business
decisions and prepare for the future. The report on South Korea analyzes the
political, economic, social, technological, legal and environmental (PESTLE)
structure of South Korea. The report provides a holistic view of South Korea
from historical, current and future perspective. Insightful analysis on critical
current and future issues is presented through detailed SCPT (strengths,
challenges, prospects and threats /risks) analysis for each of the PESTLE
segments. In addition, the PESTLE segments are supplemented with relevant
quantitative data to support trend analysis. The PESTLE country analysis
report series provides an in-depth analysis of 50 major countries.
Features and Benefits
• Understanding gained from the country analysis report on South Korea
can be used to plan business investments or market entry apart from a
holistic view of the country.
• Political section on South Korea provides inputs about the political
system, key figures in the country, and governance indicators.
• Economic section on South Korea outlines the economic story of the
country to provide a balanced assessment on core macro-economic
issues.
• Social section on South Korea enables understanding of customer
demographics through the income distribution, rural-urban
segmentation and centers of affluence, healthcare and educational
scenario in the country.
• Technological section on South Korea provides strategic inputs on
information communications and technology, technological laws and
policies, technological gaps, patents data and relevant laws.
• Legal section on South Korea provides information about the legal
structure, corporate laws, business set-up procedures and the tax
regime.
• Environmental section provides information on environmental policies
in South Korea and the performance in terms of important
environmental indicators.
Highlights
PESTLE analysis of South Korea identifies issues that affect the country’s
performance through the prism of current strengths (strengths), current
challenges (weaknesses), future prospects (opportunities) and future risks
(threats).
The political landscape discusses the evolution of the political scenario in
South Korea in different periods. The economic, social, foreign and defense
policies are considered in the political landscape section. It also discusses the
performance of the country as per World Bank Governance Indicators.
The economic landscape describes the evolution of the economy of South
Korea in different periods. It also examines the country’s performance in terms
of GDP growth, composition by sector (agriculture, industry and services),
fiscal situation, international investment position, monetary situation, credit
disbursement, banking sector and employment. The economic landscape also
explains the financial system in the country, especially with regard to financial
authorities/regulators.
The social landscape covers the demographics, education and healthcare
scenario in South Korea. The social welfare policies of the government along
with the country’s performance in terms of healthcare, income distribution and
education are also provided.
The technological landscape discusses the structure and policies in terms of
Intellectual property, research & development, technology agreements/pacts;
and policies related to the promotion of technology in South Korea.
The legal landscape examines the structure of the judicial system, legislation
affecting businesses, tax regulations, labor laws, trade regulations and
corporate governance in South Korea.
The environmental landscape in South Korea discusses the environmental
regulations and policies of the country. The performance of the country in
terms of in terms of environmental indicators and impact of environmental
policies is also examined.
'The 1997–98 regional financial crises led to a short but sharp economic
downturn in 1998, with the economy contracting by around 6.7%. In 1999 and
2000, the economy rebounded strongly on the back of the global recovery and
improved competitiveness resulting from the sharp currency devaluation
during 1997. The strong global outlook, combined with an accommodative
monetary stance and strong consumer spending growth, led to a robust
growth rate of 6.9% in 2002. South Korea's economy grew at a slightly lower
rate of 4.7% in 2004. A supportive policy stance and benign external
conditions helped the economy to grow at 4.1% in 2005. Continued labor
market improvements, a strong employment scenario and increasing labor
productivity increased the country’s growth to about 5% in 2006. The credit
crisis of 2008–09 led to a global economic downturn, which affected South
Korea's export market. Growth dropped to 2.2% in 2008, and the country's
economy barely averted recession by expanding at 0.2% in 2009. The
country’s economy bounced back to register a growth rate of 6.1% in 2010.'
Conclusion
Banking Sector Performance:
Country ROA ROE COST/INCOME
RATIO
NPL/ASSET
RATIO
India 1.0 18.5 72 11
Korea 0.5 10.9 78 20
Meaning of Bank
People need money to meet future expenses on marriage, higher
education .of children, house building and other social functions. These are
heavy expenses, which can be met if some money is saved out of the present
income. Saving of money is also necessary for old age when it may not be
possible for people to work and earn their living.
So for saving money they use to hold money at their home, but it also
involved the risk of loss by theft, robbery and other accidents.
Thus, people were in need of a place where money could be saved safely and
would be available when required. Banks are such places where people can
deposit their savings with the assurance that they will be able to withdraw
money from the deposits whenever required.
Bank is a lawful organization, which accepts deposits that can be
withdrawn on demand. It also lends money to individuals and business
houses that need it.
Banks give two assurances to the depositors –
a). Safety of deposit, and
b). Withdrawal of deposit, whenever needed
On deposits, banks give interest, which adds to the original amount of deposit.
It is a great incentive to the depositor. It promotes saving habits among the
public.
Bank of Korea
Bank of Korea
Bank of Korea Signature
Headquarters Jung-gu, Seoul, South Korea
Established June 12, 1950
Governor Choongsoo Kim
Central bank of South Korea
Currency South Korean won
Base borrowing rate 3.00%
(Wiki pidia)
The Bank of Korea (BOK) is the central bank of South Korea and issuer of
South Korean won. It was established on June 12, 1950 at Seoul, South
Korea.
The Bank's primary purpose is price stability. For that, the Bank targets
inflation. The 2010–12 targets are consumer price inflation of 3.0 ± 1%.
History
In the year 1950 under the Bank of Korea Act, The Bank of Korea was
established on June 12.
To tackle the severe inflation and financial disorder which brought an acute
shortage of resources and the division of the country.
With this situation, discussions regarding the country on establishing a central
bank for the Republic of Korea
Based on this plan, the Bank of Korea Act was passed in May 1950 and the
Bank launched its operations as a central bank on June 12, 1950. It was given
a wide range of functions in relation to monetary & financial policy, bank
supervision, and foreign exchange policy.
Primary Purpose
The primary purpose of the Bank is to pursue price stability.
The central bank to safeguard the value of the money by keeping inflation low.
Because the purchasing power of money depends on prices. When prices
rise, the same amount of money buys less than before
Prices are influenced by various factors such as corporate investment,
household consumption and international prices of raw materials.
For these purpose, the responsibility for price stability is given to central
banks in most countries. The Bank sets and announces an inflation target for
a certain period and strives to meet this target.
Organization
Monetary Policy Committee
At the top of the Bank of Korea's organization is the Monetary Policy
Committee (Geumnyung Tonghwa Wiwonhoe). The Committee's prime
function is the formulation of monetary and credit policies. More over, the
Committee deliberates and resolves on major matters concerning the
operations of the Bank of Korea.
The Monetary Policy Committee is composed of seven members representing
various groups in the national economy:
1) The Governor, ex-officio;
2) The Senior Deputy Governor, ex-officio;
3) One member recommended by the Minister of Strategy and Finance;
4) One member recommended by the Governor;
5) One member recommended by the Chairman of the Financial Services
Commission;
6) One member recommended by the Chairman of the Korea Chamber of
Commerce & Industry;
7) One member recommended by the Chairman of the Korea Federation of
Banks.
Bank of Korea in Seoul
The current governor Kwon Hyouk-Se was named to his position in March
2011 after a career of nearly three decades in finance-related positions in the
government.
When the Monetary Policy Committee deems it necessary for the
implementation of monetary and credit policies, the bank of korea request the
FSS to perform an examination of a bank and other financial institutions.
Functions
1. Issuing Banknotes and Coins
The Bank of Korea has the special right to issue banknotes and coins in the
Republic of Korea. Their dimensions, designs and denominations are
determined by the Monetary Policy Committee with Government approval.
The banknotes and coins thus issued have tender within the country for all
transactions, both public and private, without limitation.
The Bank is not required to maintain any prescribed minimum ratio of gold or
foreign exchange against its banknotes and coins issued, nor are any
maximum limit imposed on their issue.
Currently, there are four different denominations of banknotes in circulation
and we present in following table.
Banknotes Bank
coins
₩1,000 ₩1
₩5,000 ₩5
₩10,000 ₩10
₩50,000 ₩50
₩100
There are 5 Banknotes and Six Bank coins in table. The Bank issued
redesigned ₩5,000 banknotes in January 2006, and redesigned ₩1,000 and
₩10,000 banknotes in January 2007.
2. Formulating and Implementing Monetary and Credit Policy
The Bank conducts monetary policy with an emphasis on price stability,
economic growth, financial asset and market conditions are also being taken
into consideration. The Bank has introduced an inflation targeting regime after
the foreign currency crisis, and changed the monetary aggregate-oriented
operational framework to an interest rate-oriented framework in which its Base
Rate forms its policy rate and operational target. The monetary and credit
policy of bank is implemented through three instruments and they are:
open market operations,
lending and deposit facilities and
Reserve requirements,
.
3. Acting as the Banker's Bank
The Bank of Korea makes loans to and receives deposits from banks, thus
serving as the banker to the banking sector.
Bank of Korea maintain current account for banking institution and they kept
reserve deposit in these account to clear checks and settle inter bank balance
that arise from use of BOK.
The Bank also conducts credit operations with banks by rediscounting
commercial bills or by extending loans against the maturities of up to one
year.
As they are the lender of last resort, the Bank may extend exceptional loans
to banking in periods of serious emergency.
4. Serving as the Government's Bank
The Government's bank of Korea carries out various kinds of business for the
Government in accordance with the Bank of Korea Act and other relevant
legislation.
The Bank, as the depositary of the Government, handles national revenue
deposits and also accepts deposits from, and makes loans to, government
agencies.
Furthermore, the Bank performs tasks related to the issuing, registering and
redeeming of government securities. In addition, it may provide securities
custodian services for the Government.
The Bank may render credit to the Government as an overdraft on its account
or in other forms, and may directly subscribe to Government bond issues. The
interest rates and other terms on such credits are determined by the Monetary
Policy Committee.
5. Operating and Managing Payment Systems
The Bank of Korea provides three settlements like
Certain settlement services for the public convenience for the safety and
efficiency of the nation's payment as a whole and
Provides settlement facilities to financial intermediaries across their current
accounts with the Bank for final settlement purposes.
Net settlements that arise from major retail payment systems such as bill
clearing and internet banking, payments for delivery versus payment(DVP)
and payment versus payment(PVP) are made through the current accounts
with the Bank.
6. Managing Official Foreign Exchange Reserves
The Bank of Korea holds and manages Korea's official foreign exchange
reserves. Its principal objectives in their management are to safeguard the
value of the reserves and to meet the nation's demand for foreign exchange.
The Bank makes an effort to stabilize the FX market in consultation with the
Government. While the Bank lets the exchange rate be freely determined by
economic fundamentals as well as demand and supply of foreign exchanges
in the market.
Furthermore the Bank acts as an agent for the Government in managing the
Foreign Exchange Stabilization Fund, with the object of stabilizing the foreign
exchange market.
7. Monitoring the Financial System and Assessing Its Stability
The Bank of Korea monitors the financial system and assesses its stability. It
reviews domestic and overseas economic conditions, analyzes the financial
market environment and examines the debt servicing capacity of the
household and business sectors to identify potential risk factors in the
financial sector and to prevent them causing financial system unrest.
The Bank also the managed the status of financial institutions and assesses
their soundness, based upon information collected from reports and surveys
on them, while if necessary conducting joint examinations of these institutions
with the Financial Supervisory Service.
In addition, the Bank publishes Financial Stability Report, which includes an
analysis of the current status and potential risks of the Korean financial
system and an overall assessment of its stability.
8. Carrying out Economic Education
The Bank of Korea undertakes diverse activities to boost public awareness
about the Bank and Korean economy like,
Bank conducts economic education activities for youths, headed up by the
'Economic Lecture for School' programs. It also conducts economic lectures
on request for universities, the military and police services, and non-
government organizations.
The Bank also runs a weekly 'BOK Friday Class' program for the general
public. In addition, it holds an annual 'Monetary Policy Challenge' for college
students to promote greater understanding of its role in formulating and
implementing monetary policy.
Further, the Bank has operated a special website providing online economic
education since September 2006. The website is composed of three sub-sites
for children, youths and adults.
List of Banks in South Korea
Central Bank (Bank of Korea)
Types of Accounts:
There are several different types of bank accounts available to citizens and
foreigners alike. Most accounts do not require a minimum balance nor do they
charge any fees to maintain one.
Savings
These accounts work the same in South Korea as in most other countries.
The client deposits money at the rate he/she desires and the bank offers
interest as an incentive to save. Generally, the longer the term of commitment
the higher the interest rate will be. For shorter-term accounts, the interest
rates are fairly low for savings accounts (about 2%-4%).
Time Deposit
A time deposit account works more like a checking account. Some banks do
offer interest on time deposits, but they are generally lower than savings
accounts.
Local BankSpecial BankNationwide Banks
KB Financial Group
Kookmin Bank
Shinhan Financial
Group
Shinhan Bank
Hana Financial Group
Hana Bank
Korea Exchange Group
Woori Bank
Korea Development
Bank
Industrial Bank of
Korea
National Federation of
Fisheries Cooperatives
National Agricultural
Cooperative Federation
Export – Import Bank
of Korea
Woori Finance Holdings
Co. Ltd
Gwangju Bank (034)
Kyeongnam Bank(039)
Shinhan Financial
Group
Jeju Bank (035)
DGB Financial Group
Daegu Bank
BS Financial Group
Installment
This account requires the client to make monthly installments/payments to the
bank for interest. At maturity, the client will have made a profit. This works like
a Certificate of Deposit, except the money does not have to be paid up front
but in monthly deposits.
Within a couple weeks of signing up for an account you will receive a
bankbook to record your transactions and a bank card. The bank card is
strictly an ATM card to withdraw money from any ATM machine. It cannot be
used to charge purchases to your account.
Services, Fees & Interest
The beauty about most Korean bank accounts is the lack of service fees that
they charge. So don’t get sucked into paying extra fees because it is likely
that you won’t have to anywhere else.
If you would like to make some interest on your account, the best route to take
would be a savings account or an installment account. Interest is generally
between 2% and 4% and can be paid at varying periods of time (annually,
semi-annually, monthly, etc).
Depending on which bank you sign up with, you may be offered tax benefits.
Rates vary between banks and types of accounts. For example, Korean
Exchange Bank charges 10.5% for taxes on a Time Deposit account.
Credit Cards
International credit cards (American Express, Diners Club, MasterCard and
Visa) can pretty much be used anywhere. However, only some ATM’s will
accept foreign credit/debit cards (look for machines correlated with Cirrus,
Star, Interlink, Plus, etc). The bank card issued by your bank is not a
credit/debit card, but an ATM card. It can only be used to withdraw cash from
bank ATM machines. ATM machines are out of service after 11:00PM so plan
accordingly when withdrawing cash.
The Korea Travel Card (KTC)
This is a multipurpose, pre-paid travel card sold by the Korean National
Tourism Office, Shinhan Card and the Shinhan Bank, only to foreign tourists
or residents. This card provides discounts on currency charges, international
and national calls and provides free travel insurance. The card can be bought
in denominations of KRW 100,000, 200,000, 300,000, and 500,000 or in a
customized amount between KRW 100.000 and 500,000. Direct debits & bank
transfers
Sending Money Home
Koreans want you to spend your money in their country and therefore may put
restrictions on the amount of money you can transfer out. However, it is your
money and there are plenty of resources that allow you to send it home if you
wish. Your local bank and other well-known companies such as Western
Union and Money Gram are located all throughout Korea to provide the
services that you need.
Most banks offer services to transfer funds internationally for a small service
fee (your home bank may also charge a fee to receive the money). However,
many banks put a limit on the amount of money you can transfer.
It is essential that Foreigner bring his passport with them while transferring
money because it is procedure for many banks to stamp it each time. Some
institutions have recently established online banking services where you can
do things like transfer money from the convenience of your computer. Since
you are charged by the Korean bank and your home bank each time you
transfer money, it is wise to send larger amounts of money fewer times.
Choosing a bank
Most banks in Korea offer the same services for the same price, your choice
should depend more on other factors. If you plan to send most of your money
home, you should find a bank that has little or no restrictions on the amount
you can transfer. A transfer should take no longer than a couple days to a
week to arrive to your other account.
The Bank of Korea
General Features
The Bank of Korea was founded on June 12, 1950 under the Bank of Korea
Act. The Bank was originally established with a capital of 1.5 billion won, all of
which was subscribed by the Government, but the revision of the Bank of
Korea Act in 1962 made the Bank a special juridical person having no capital.
The primary purpose of the Bank, as prescribed by the Act, is the pursuit of
price stability. The Bank sets an inflation target in consultation with the
Government and draws up and publishes an operational plan for monetary
policy.
The Bank performs the typical functions of a central bank: issuing bank notes
and coins, formulating and implementing monetary and credit policy, serving
as the banker's bank, and the Government's bank. In addition, the Bank of
Korea undertakes overall management and surveillance of the payment and
settlement systems, and manages the nation's foreign exchange reserves. It
also monitors the financial system and assesses its stability.
Policy Objectives
The Bank of Korea Act provides that the sole purpose of the Bank is to
contribute to the sound development of the national economy by pursuing
price stability through the formulation and implementation of efficient
monetary and credit policies. Since 1998, the Bank of Korea has employed
inflation targeting, and set a target in consultation with the government.
Recently, following the global financial crisis, the Bank of Korea has placed
greater emphasis on heightening the stability of the financial system. This has
involved vigilant monitoring and the preemptive supply of funds to troubled
sectors. Notably, in the latter half of 2008, the Bank of Korea actively supplied
liquidity amounting to 19.5 trillion won in order to handle the credit crunch in
the domestic financial market, after Lehman Brothers' collapse. In addition,
the Bank publishes Financial Stability Report and oversees the nation's
payment and settlement systems to promote their safety and efficiency.
Organization
The Bank of Korea's organization consists of the Monetary Policy Committee,
the supreme policy-making body; the executive, which carries out the policies
formulated by the Monetary Policy Committee; and the Auditor.
The Monetary Policy Committee as the policy decision-making body, has the
right to deliberate and resolve on major matters concerning monetary and
credit policy and the operations of the Bank of Korea.
The Monetary Policy Committee is composed of seven members representing
various groups in the national economy, and includes the Governor and the
Senior Deputy Governor of the Bank as ex officio members. The members are
appointed by the President for four-year terms except the Senior Deputy
Governor whose term is three years. All members serve on a full-time basis
and no member may be discharged from office against his or her will. The
Governor serves concurrently as the Chairman of the Committee.
The Committee generally convenes on the Thursdays of the second and
fourth weeks of each month and holds extraordinary meetings as frequently
as needed. Monetary policy is resolved and announced on the Thursday of
the second week of every month. The minutes of each Committee meeting
are announced in the Bank's web-site on the first Tuesday after six weeks
have passed from a meeting.
Resolutions at a Monetary Policy Committee meeting are adopted by simple
majority when there are at least five members present. Any member may
submit a proposal with the concurrence of at least one other member. The
Chairman, however, can submit a proposal on his or her own motion.
QUESTIONS INDIA SOUTH KOREA
Decide the Type of
Bank Account you
want to Open
There are several types
of bank accounts such
as Saving Account,
Recurring Account,
Fixed Deposit Account,
Current Account and
joint account. So a
decision regarding the
type of account to be
opened must be taken.
There are same types of
bank account in South
Korea but there is no
joint account in South
Korea.
Approach any Bank of
choice & meet its
Bank Officer
Once the type of
account is decided, the
person should approach
a convenient bank. He
Opening a local bank
account is quite easy to
do in South Korea
whether you are a
has to meet the bank
officer regarding the
opening of the account.
The bank officer will
provide a proposal form
(Account Opening Form)
to open bank account.
foreigner or not. They
are sensitive to their
needs and some even
have translators on-site
or documents in
languages other than
Korean. However, if you
do have a friend who
can speak Korean, it
may prove to be very
helpful to have him/her
accompany you
Fill up Bank Account
Opening Form -
Proposal Form
The proposal form must
be duly filled in all
respects. Necessary
details regarding name,
address, occupation and
other details must be
filled in wherever
required. Two or three
specimen signatures are
required on the
specimen signature
card. If the account is
opened in joint names,
then the form must be
signed jointly. Now days
the banks ask the
applicant to submit
copies of his latest
photograph for the
purpose of his
identification.
On the form you will
have to fill out your
address in Korean,
name, job or school and
passport number or
alien card number. You
must write down your
name exactly as it is on
your passport.
When you have finished
writing down all your
details give the form to
the staff and they will
give you a number.
Give References for The bank normally The bank normally
Opening your Bank
Account
required references or
introduction of the
prospective account
holder by any of the
existing account holders
for that type of account.
The introducer
introduces by signing his
specimen signature in
the column meant for
the purpose The
reference or introduction
is required to safeguard
the interest of the bank.
required references or
introduction of the
prospective account
holder by any of the
existing account holders
for that type of account.
The introducer
introduces by signing his
specimen signature in
the column meant for
the purpose The
reference or introduction
is required to safeguard
the interest of the bank.
Submit Bank Account
Opening Form and
Documents
The duly filled in
proposal form must be
submitted to the bank
along with necessary
documents. For e.g. in
case of a joint stock
company, the
application form must
accompany with the
Board's resolution to
open the account. Also
certified copies of
articles and
memorandum of
association must be
produced.
The duly filled in
proposal form must be
submitted to the bank
along with necessary
documents. For e.g. in
case of a joint stock
company, the
application form must
accompany with the
Board's resolution to
open the account. Also
certified copies of
articles and
memorandum of
association must be
produced.
Officer will verify your
Bank Account
The bank officer verifies
the proposal form. He
checks whether the form
is complete in all
You will then have to
wait while they process
the form, usually about
15 minutes but it
Opening Form respects or not. The
accompanying
documents are verified.
If the officer is satisfied,
then he clears the
proposal form.
depends on how busy
they are. They will issue
you your new bank card
and passbook on the
spot. They will ask you
to check to make sure
all the details are
correct.
Deposit initial amount
in newly opened Bank
Account
After getting the
proposal form cleared,
the necessary amount is
deposited in the bank.
After depositing the
initial money, the bank
provides a pass book, a
cheque book and pay in
slip book in the case of
savings account. In the
case of fixed deposits, a
fixed deposit receipt is
issued. In the case of
current account, a
cheque book and a pay
in slip book is issued.
For recurring account,
the pass book and a pay
in slip book is issued.
You receive is a Woori V
Expat Check Card and
Pass Book / Bank Book.
The card can be used
overseas as it has the
Cirrus logo and it can
also be used as a debit
card. That means that
you can pay for things in
the shops using your
card. Some of the cards
also offer T-money so
you can pay for
transportation. The bank
book can be used for
withdrawing or
depositing money into
your account from your
ATM. It is a good way of
keeping tracks of your
money as every time
you use it you current
balance will be updated
in the bank book.
Introduction
Financial Supervisory system in S. Korea prior to FSS
Korea financial supervisory system was largely fragmented, with the banking,
securities, insurance, and non-bank sectors individually managed and
regulated by a separate agency. Further the authority of supervision was split
into two governing entities,
1] The supervisory agencies and
2] The Ministry of Finance and Economy.
Under this segregated supervisory system, the banking sector, the securities
sector, and the insurance sector was overseen by the ministry, and by the
Securities Supervisory Board .
Establishment of Financial Supervisory Service (FSS)
After the end of the 1980s which marked a time of diversification in the
financial industry and businesses’ crossover into other financial sectors. As
opening of markets to foreign investments and the ongoing of globalization
the financial environment changed considerably. The financial supervisory
system of past, which include the banking, securities, and insurance sectors
were each regulated by their respective supervisory agencies, which was has
longer fit to the innovations in the financial environment. And as a result, the
government established Financial Reform which is said as the financial
supervisory system.
Now the following are recommendations for the financial supervisory system:
Consolidation of the existing supervisory agencies into one organization
for better dealing in business expansion into financial sectors, market
liberalization, and the rising uncertainty in the market;
Establishment of financial supervisory authority which is independent from
macroeconomic, monetary and credit policies;
Establishment of an autonomous financial supervisory authority
independent from macroeconomic, monetary and credit policies;
Major progress
The consolidation of the financial supervisory system helped Korea in
following ways:
Quickly and efficiently recover from the Asian financial crisis which held
at the end of 1997.
T he FSS led an intensive restructuring of the financial industry eliminating
insolvent financial companies and putting whole financial system back on
track.
To increased insolvency resulting from the Asian financial crisis, the
FSS successfully headed a corporate restructuring and they
implemented a series of measures like the improvement of
conglomerates’ financial structure, liquidation of failing companies, and
workout program.
The FSS also reacted to the credit card crunch and market distress
which caused by excessive credit card business expansion , by
strengthening prudent supervision of credit card companies and
encouraging the development of M&As in order to prevent uncertainty
from spreading throughout the financial market.
So the integrated supervisory agency facilitated a systematic
application and supervision of programs introduced in the aftermath of
the crisis, like forward-looking criteria (FLC), a system of financial
holding companies, and the retirement pension plan.
Major Functions
Major functions of fss are:
Supervision of financial institutions: (Preliminary) review of license
applications (for bank, non-bank, financial investment company,
insurance company, credit card company, review of the terms and
conditions of financial institutions; supervision of the soundness of
business management and business activities
Examination of financial institutions: Analysis and evaluation of
financial companies’ business activities, financial position, and risk
management capacity; verification of companies’ compliance with
relevant statutes.
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 Vision
Purpose
The purpose of the Financial Supervisory Service is to contribute to the
growth of the national economy by:
1) Promoting the advancement of the financial industry and the stability of
financial markets.
2) Establishing sound credit order and fair financial transaction practices.
3) Protecting financial consumers, such as depositors.
Vision
The FSS adhere to a philosophy of a ‘client-focused mindset,’ ‘high-level
of expertise ’and‘financial supervision that builds the public trust.’
To realize its vision, the organization stresses five core values: client
orientation, professionalism, fairness, transparency, and accountability.
Current Issue
Early recovery from the crisis
After the financial crisis, the key policy objective of the FSS was
to stabilize the financial market and enhance the health and
soundness of Korea’s financial institutions.
During the recent period of credit expansion, the FSS took a
series of strengthened measures such as Loan-to-Value (LTV)
and Debt-to-Income DTI regulation. When the sub-prime
mortgage crisis emerged in the United States, the FSS
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
Functions of an Indian Bank
Functioning of a Bank is among the more complicated of corporate
operations. Since Banking involves dealing directly with money, governments
in most countries regulate this sector rather stringently. In India, the regulation
traditionally has been very strict and in the opinion of certain quarters,
responsible for the present condition of banks, where NPAs are of a very high
order.
Banking Regulation Act of India, 1949 defines Banking as "accepting, for the
purpose of lending or investment of deposits of money from the public,
Central Bank (Reserve Bank of India)
Private SectorPublic Sector Foreign Sector
Allahabad Bank
Bank of India
Bank of Baroda
Canara Bank
Dena Bank
HDFCBank
ICICI Bank
UTI Bank
Bank of Punjab
Bank of Rajasthan
ABN-AMRO Bank
Abu Dhabi
Commercial Bank
Bank of Cevlon
Citi Bank
Taib BAnk
repayable on demand or otherwise and withdraw able by cheques, draft, and
order or otherwise". Deriving from this definition and viewed solely from the
point of view of the customers,
Banks essentially perform the following functions:
1. Accepting Deposits from public/others (Deposits)
2. Lending money to public (Loans)
3. Transferring money from one place to another (Remittances)
4. Credit Creation
5. Acting as trustees
6. Keeping valuables in safe custody
7. Investment Decisions and analysis
8. Government business
Other Services Offered by Banks
Role of Banks in Indian Economy
Most developing countries, the commercial banking sector has been
the dominant element in the country’s financial system.
The Banking sector has performed the key functions of providing
liquidity and payment services to the real sector and has accounted for
the Bulk of the financial intermediation process.
Besides institutionalizing savings, the banking sector has contributed to
the process of economic development by serving as a major source of
credit to households, government, and business and to weaker sectors
of the economy like village and small-scale industries and agriculture.
Over the years, over 30-40% of gross household savings have been in
the form of bank deposits and around 60% of the assets of all financial
institutions accounted for by commercial banks.
Important landmark in the development of banking sector in recent
years has been the initiation if reforms following the recommendations
of the first Narasimham Committee on Financial System.
By reviewing the strengths and weaknesses of these banks, the
Committee suggested several measures to transform the Indian
banking sector from a highly regulated to amore market oriented
system and to enable it to compete effectively in an increasingly
globalised environment.
Comparisons of Total Savings and Deposits (in US$
billions)
SOUTH KOREA
Year 1999 2000 2001 2002 2003 2004
Gross domestic
saving
108 126 141 135 127 147
Gross domestic
saving/GDP(%)
33.7% 34.4% 33.5% 32.6% 30.9% 29.3%
Demand deposits 25 31 37 35 38 47
Saving deposits 48 81 117 123 144 173
Time deposits 33 96 128 163 162 212
INDIA
Year 1999 2000 2001 2002 2003 2004
Gross domestic
saving
90 88 107 105 114 120
Gross domestic
saving/GDP(%)
23.1% 21.5% 24.1% 23.4% 24.0% 24.0%
Demand deposits 26 28 29 30 31 35
Time deposits 126 140 158 175 197 231
Table compares total gross domestic saving across India and South Korea
during the period 1999-2004. In Gross domestic saving highest is South
Korea (an average 130.66), while in India 104. In terms of the ratio of Gross
Domestic Savings/GDP (“Gross Domestic Savings,” a category in the national
accounts, includes more types of savings than bank deposits), South Korea
maintain highest level (an average 32.4%), while in India 23.35%. In terms of
Demand deposits South Korea is highest than the India. In terms of time
deposits India is higher than South Korea.
Notes: *: Gross Domestics savings, from the national accounts, is an annual
flow measure; a: Demand deposits, balance of the accounts can be withdrawn
on demand of customers (e.g., check writing); b: Savings deposits, interest-
bearing accounts that can be withdrawn but not to be used as money (e.g., no
check writing, M2); c: Time deposits, savings accounts or CD with a fixed term
(M2).
Country Bank
Assets/GDP
Rank % of Bank
Assets
Government-
owned
Rank % of
Bank
Assets
Foreign-
Owned
Rank % of
Bank
Assets
in Top
3
Banks
Rank Net
Interest
Margin
as % of
Total
Assets
Rank
South
Korea
97.70 26 29.70 15 0.00 54 39.20 41 2.10 18
India 47.55 46 80.00 1 0.00 53 34.60 44 2.78 29
Structure of Banking Systems around the World
The far left-hand column gives a measure of the size of the banking system
relative to the economy, using the ratio of banking system assets to GDP for
every country; the average bank-assets-to-GDP ratio for each income group
is also displayed. The second column from the left gives the rank of each
country in terms of the relative size of the banking system.
Table shows the extent of government ownership of banks in countries, based
upon the percent of bank assets that are government-owned. There is wide
variation across the world in the extent of government ownership of banks,
from 0 percent in about one-third of the countries, to 80 percent in one
country, India. Bank Assets Foreign- Owned is 0.00% in both country and in
Bank Assets in top 3 Banks South Korea is better than India but there is no
big difference. In Net Interest Margin of Total Assets the South Korea is better
than India.
Performance of Banking Systems around the World
Country Return
on
Overall
Rank
Return
on
Overall
Rank
Noninterest
Revenue /
Overall
Rank
Nonperforming
Loans as % of
Overall
Rank
Assets
(ROA)%
Equity
(ROE)%
Total
Revenue
(%)
Total Loans
South
Korea
1.42 10 23.13 5 27.50 28 13.60 41
India 0.47 41 9.17 38 12.72 42 14.70 46
Although net income gives us an idea of how well a bank is doing, it suffers
from one major drawback: It does not adjust for the bank’s size, thus making it
hard to compare how well one bank is doing relative to another. A basic
measure of bank profitability that corrects for the size of the bank is the return
on assets (ROA), which divides the net income of the bank by the amount of
its assets. ROA is a useful measure of how well a bank manager is doing on
the job because it indicates how well a bank’s assets are being used to
generate profits
Although ROA provides useful information about bank profitability, we have
already seen that it is not what the bank’s owners (equity holders) care about
most. They are more concerned about how much the bank is earning on their
equity investment, an amount that is measured by the return on equity (ROE),
the net income per dollar of equity capital.
As with banking structure, there are noteworthy differences across countries
in banking industry performance. Two measures of bank profitability are
included: return on assets (ROA) and return on equity (ROE). Both measures
show wide variation across countries, and although they do not necessarily
run in tandem, countries stand in roughly the same position relative to each
other by either measure. Looking at the averages for the four income level
groups, a clear-cut positive correlation exists between ROE and income level.
The pattern is not as clear in the case of ROA, although the two highest
income groups show a considerably greater average ROA than the two
lowest.
Table shows that Return on Assets is better in South Korea then India. In
ROE, Noninterest Revenue/ Total Revenue, Nonperforming Loans of Total
Loans all are better in South Korea compare to India.
The Structure, Scope, and Independence of Bank Supervision
Country Bank
Supervisory
Authority
Single or
Multiple
Supervisors
Role of
Central
Bank
Scope of
Supervisory
Authority
Degree of
Supervisory
Independence
South
Korea
Financial
Supervisory
Commission,
Ministry of
Finance and
Economy
Multiple NCB BSI Low
India Reserve Bank of
India
Single CB B Low
"CB" indicates that the central bank is a banking supervisory authority; "NCB"
indicates that the central bank in not a banking supervisory authority.
"B" indicates that the supervisory authority (ies) has(have) responsibility only
for the banking industry; ""BSI" indicates that the supervisory authority(ies)
has (have) responsibility for the banking, securities, and insurance industries.
As with the single-multiple supervisor debate, a useful first step in addressing
the debate over the bank supervisory role of the central bank is to ascertain
basic facts.
Table presents that South Korea is a multiple supervisors and in India is
Single supervisors. Role of central bank in South Korea is NCB means central
bank is not a banking supervisory authority where in India is banking
supervisory authority.
Implementation of Banking Supervision
Country Frequency of On-
Site Exams at Large
and Mid-Size Banks
Number of
Professional Bank
Supervisors per
Institution
Banking Assets per
Professional
Supervisory Staff
(US$ Billions)
South Korea Annually 5.70 0.77
India Annually 5 to 6 0.27
Table shows comparative information for several aspects of the
implementation of supervision across countries. Table presents information on
the frequency of on-site bank examinations. We have no direct information on
the scope of bank examinations across our sample of countries – i.e., what
aspects of bank operations are examined, and how thoroughly. However, in
about half of the countries’ bank supervisors perform an on-site examination
of most banks annually.
An alternative measure of supervisory resource use is given in the far right-
hand column of Table. “Banking Assets per Supervisory Staff” gives a rough
measure of the “coverage” of banking system activity for which each
supervisory staff member is responsible.
Key Features of Deposit Insurance Schemes
Country Date
Enacted/
Revised
Coverage
Limits
Coverage
Ratio
Limit/GDP
per Capita
CO-
Insurance
Type of
Fund
Risk-
Adjusted
Premiums
Types of
Membership
South
Korea
1966 N/A N/A No Funde
d
No Compulsory
India 1961 $2,355 6 No Funde
d
No Compulsory
Approximately one third of all countries have already established deposit
insurance schemes. Information on selected design features for the schemes
in representative countries is presented in Table. It is quite clear from this
information that there are important differences in key features across all
these countries, which includes both emerging market economies and mature
economies.
One key feature of any deposit insurance scheme is the coverage limit for
insured depositors. The higher the limit the more protection afforded to
individual depositors. But the higher the limit, the greater the moral hazard.
Although many countries at all levels of income and in all parts of the world
have established deposit insurance schemes, they have not chosen a uniform
structure. The specific design features differ widely among countries as
indicated in Table.
Corporate Governance in Banking around the World
Country Strength of
External Audit
Bank
Accounting
Transparency
External Ratings
and Creditor
Monitoring
Corporate
Governance
Index
South Korea 3 4 2 9
India 4 3 1 8
An important dimension of corporate governance is the degree of
transparency that exists for the operations of a firm. The more comprehensive
and accurate is information about how managers conduct the firm’s business,
the more effective can stakeholders are in monitoring managers’
performance.
Table presents cross-country information on bank operations transparency:
(1) the effectiveness of external audits of banks; (2) the transparency of bank
accounting practices; and (3) the evaluations by external rating agencies and
incentives for creditors of the bank to monitor bank performance. An index
summarizing country-specific component data on each of these three
dimensions of corporate governance in banking is calculated, with higher
values indicating better corporate governance measures.
In addition, the far right-hand column aggregates these indexes into a
“Corporate Governance Index.” As in the case of other cross-country
information presented throughout this chapter, the countries compared in
Table show a relatively wide range of differences across corporate
governance characteristics.
Capital Adequacy Ratio – International Comparison
Year
Country
2002 2006 2007
South Korea 11.7 12.8 12.7
India 12.0 12.3 12.3
Capital is essential and critical to the perpetual continuity of a bank as a going
concern. On the recommendations of the Narasimham Committee (1992), RBI
introduced the internationally accepted Capital to Risk-Weighted Assets Ratio
(CRAR), also called Capital Adequacy Ratio (CAR) system as a Capital
Adequacy measure to be achieved in a phased manner by the Scheduled
Commercial banks operating in India.
RBI issued the Capital Adequacy guidelines in April, 1992. As per the
guidelines issued by RBI, banks in India, including foreign banks, were
required to maintain a minimum capital to Risk weighted assets ratio (CRAR)
norm of 8% in conformity with international standards.
Domestic Bank Credit to the Private Sector
(In real terms, in percent per annum)
Year
Country
1990-99 2000-04 2005 2006 2007
South
Korea
11.2 5.6 5.7 13.8 10.7
India 4.5 12.5 20.2 18.5 14.7
Comparison Banks in Emerging Economies (Size of Profits-)
Bank Country Size if
Profits in
2008
($millions)
PE Ratio Share Price
as on 30
Nov
20009(In
USD)
State Bank
of India
India 3470 9.36 48.15
Kookmin Korea 1714 8.6 19.01
Bank
EXIM BANK EXTENDS US$ 20 MILLION CREDIT LINE TO KOREA
DEVELOPMENT BANK
Export-Import Bank of India (EXIM Bank) has extended a credit line of US$ 20
million to Korea Development Bank, to finance export of Indian manufactured
goods and commodities to South Korea. Under this special credit
arrangement with Korea Development Bank, Exim Bank will finance 100%
value of export of eligible goods, which include agricultural products, software,
marine products, iron and steel products and raw materials as well, for which
Exim Bank has already obtained the permission of Reserve Bank.
Under the above facility, Korea Development Bank will open a letter of credit
favoring an Indian exporter which would include a note that it is payable at
sight to the beneficiary (Indian exporter) and that it is to be refinanced for a
period of 6 months or 12 months, as may be the case. Korea Development
Bank will authorize Exim Bank to accept a time draft drawn on Exim Bank and
reimburse a claiming bank in India and the L/C beneficiary i.e. Indian exporter
will get the proceeds at sight basis.
Indo-Korea Trade
India's exports to South Korea were US$468 million during 1997-98 which
plummeted to US$ 307.46 million during 1998-99 before bouncing back to
US$ 429 million during 1999-2000. Out of total exports to South Korea, export
of manufactured goods amounted to US$ 294 million in 1997-98, US$ 208
million in 1998-99 and US$ 326 million in 1999-2000. Major items of export to
South Korea during 1999-2000 were drugs, pharmaceuticals and fine
chemicals, dyes intermediates, aluminum, machine tools, cotton yarn fabrics
and made-ups, plastic and linoleum products, machinery and instruments.
Exim Bank's credit line is an initiative aimed at boosting India's exports to
South Korea.
Korea Development Bank
Since its establishment in 1954, the Korea Development Bank, the wholly-
owned Government Bank, has been the nation's leading provider of long-term
funds to major industrial projects. Moreover, since the financial crisis in Korea
in late 1997, the Bank has been at the epicenter of the financial reform and
bank-led restructuring of domestic corporations. KDB plays a leading role in
supporting trade finance, as well. KDB was ranked the "Best Asian Sovereign
Borrower" by "Euro money" in June 1999. Also KDB with total asset base of
US$ 66 billion on December 31, 1999, enjoys investment grade ratings
Baa2/BBB from Moody's and S&P, equivalent to the Republic of Korea
sovereign rating.
Korean investments in India
South Korea is one of the top ten leading investing countries in India. In 2003,
it invested US $ 24 million in India. South Korean business groups such as
LG, Samsung and Hyundai have not only established their presence in the
Indian business scene but are also looking at diversifying their businesses
into different sectors.
Korea accounts for about 2.64% of total FDI inflows, amounting to US$ 2.601
billion (excluding amount approved for ADRs/ GDRs).
The main sectors attracting foreign direct investment from South Korea are
transportation industry accounting for over 1/3rd of the share, fuels (power &
oil refinery), electrical equipment (computer software & electronics), chemicals
(other than fertilizer) and commercial, office & household equipments.
There have also been technical collaborations with South Korea- areas
include transportation industry, electrical equipment including computer
software & electronics, chemicals other than fertilizers, metallurgical industries
and industrial machinery.
In addition to the above sectors, studies have also revealed that the two
countries could set up joint collaborations in the sectors of infrastructure -
power, ports, telecommunications, ship building & ship repair, petrochemicals,
automobile ancillary, electrical & electronics, office equipment, banking &
financial services, software as well as iron & steel.
Out of 44 contracts awarded for National Highway Development Project, 9
have been won by Korean companies in collaboration with Indian companies
or independently. Recently, Hyundai Heavy Industries have won two mega
projects including one pipeline project worth US$ 600 million.
Indian investment in Korea
With the growing amount of globalization and liberalization, not only Korean
companies are making their presence felt in India, Indian firms too are
establishing themselves in Korea.
Last year in February, Tata Motors, Mumbai signed an agreement for
acquiring Daewoo Commercial Vehicles, Kunsan (South Korea) at a cost of
US$ 102 million.
The U.S. goods trade deficit with Korea was $13.1 billion in 2011, up $3.1
billion from 2010. U.S. goods exports in 2011 were $43.5 billion, up 12.0
percent from the previous year. Corresponding U.S. imports from Korea were
$56.6 billion, up 15.9 percent. Korea is currently the 7th largest export market
for U.S. goods.
Business opportunities in future
The Future of Money
Companies also love the idea of digital money because electronic payments
are faster and much cheaper, although this doesn’t necessarily mean that
they, or the retail banks, will pass on any time or cost savings to their
customers. And as far as multinationals are concerned, the sooner there’s a
single global e-currency the better, because volatility in currency markets is
yet another uncertainty to contend with.
in South Korea, more people own cell phones than computers and globally
smart phones will outsell PCs by mid-2012. So it’s pretty easy to see why
phone companies could be the banks of the future. Or, as Bill Joy has pointed
out, your phone will become your wallet, and a bank or Credit Card Company
will give it to you for nothing.
Preparing for future banking crises
A banking crisis can arrive anytime anywhere in current environments.
In the last few days, South Korea's financial regulator has temporarily
suspended seven savings banks to avert an overall systemic crisis
(WSJ, 22 February 2011). Those banks have insufficient liquidity to
meet a surge of withdrawals and inadequate solvency due to their
exposures to the weak South Korean real estate market. The
embattled saving banks have to solve their problems on their own or
seek to be acquired by large commercial banks.
In preventing it from developing into a systemic crisis, the Korean
regulator has acted early enough and found no need to involve public
money. Though in a different stage and extent of savings banks crisis,
similar responsiveness and decisiveness have been demonstrated by
Spain's government in dealing with beleaguered savings
banks, 'Cajas' (FT) that are excessively exposed to the distressed
property sector.
South Korean banks look beyond their borders
By comparison, the brands of the South Korean banks are weak and not
known on an international scale. As the conglomerates pursued their
aggressive international expansion, the banks were left behind.
And the growth potential for banks at home is drying up as net interest
margins are narrowing in the increasingly saturated market. Looking
overseas is an attractive prospect for the financial institutions that need to
expand beyond the overcrowded domestic market, and also as part of the
plan to establish a globally recognized South Korean financial institution
that is on a level with the brand recognition of the country's conglomerates.
The banking industry – and government – is fully focused on international
expansion and lifting restrictions in order for it to happen.
South Korea's economy, and its banking industry, has passed through the
recovery phase, net interest margins continue to be squeezed. The KFB
notes that net interest margins have fallen from a high of 2.81% at the end
of 2005 to 2.32% at the end of 2010. While the margins have started to
improve, senior industry executives argue that the potential of the
domestic market is limited.
A gradual, strategic overseas expansion is needed since a significant gap
exists between Korean banks and big banks in developed countries. For
this, Korean banks will have to enhance their competitiveness when
expanding their overseas operations through choosing appropriate
countries to invest in considering their comparative advantages in areas
such as IT and customer networks, finding overseas niche markets in
small and medium-sized project financing, and developing the advanced
risk management of overseas branches.
Government action: For this reason there has been focus in recent months
on the South Korean government’s efforts to boost the international
competitiveness of the country's financial institutions, to bring them up to the
more sophisticated level of their international peers. The Financial Investment
Services and Capital Markets Act, which was introduced in 2009, did not have
the desired effect of creating a South Korean mega bank that could be
globally competitive, but there is now renewed focus on revising the
regulations and establishing homegrown hedge funds.
Future Ambitious plans
For example, the sale of Korea Exchange Bank (KEB) has been an ongoing
issue for a number of years, having been subject to a few failed bids.
Hana Financial Group, which is looking to increase its size and expand
internationally, announced in November 2010 its bid to acquire KEB, which
would allow it to take advantage of KEB’s international network .This
international outlook is shared by the major financial institutions in South
Korea. As part of its vision to create a homegrown global corporate and
investment bank, the government announced in June 2008 that it would
privatize Korea Development Bank, and in June 2009 KDB Financial Group
was launched as part of this restructuring.
KDB Financial Group has its international strategy mapped out. In the
first stage it aims to become one of the top 20 banks in Asia, and the
second stage to become one of the world’s top 20 corporate and
investment banks by the year 2020. KDB says that its initial focus will be
on Asia as well as promoting its services in traditionally strong areas
such as infrastructure project finance and corporate restructuring.
Banking more of an opportunity than a challenge in India
Bankers see the future of the sector in India as more of an opportunity
than a challenge even as it may involve changing the way banking is done
in India. To be sure, daunting challenges abound, and banks have to gear
up to meet these opportunity.
These challenges mainly emanate from growing aspirations of customers,
leadership and diversification of skill sets, effective use of technology,
attracting and retaining talent in the public sector and most importantly
financial inclusion. Risk-management practices also pose as a major
challenge in the Indian banking space.
According to Stuart Fraser, chairman of policy, City of London, the
capital requirement in infrastructure space is perhaps the biggest
challenge for India right now and the economy needs to open up more.
The biggest risk to the funding need and the economy is “the opening
doesn’t happen fast enough or doesn’t happen at all.” Otherwise growth
may get affected because of lack of financing.
Financial Service Overview of South Korea
South Korea has a large and well-developed financial services
industry, with financial assets valued at over 800% of GDP. Domestic
financial institutions have gained greater freedom of action from the
state than in the past but now face stiffer competition, including
unprecedented rivalry from abroad.
The Economist Intelligence Unit expects South Korea's financial sector
to perform relatively well in 2012-16. The industry is likely to grow,
despite the ongoing uncertainty affecting global financial markets and
concerns about volatility in the value of the local currency, the won.
Strains linked to non-performing property loans should ease in 2012.
The government is also keen to see South Korea develop into a
financial hub for East Asia by 2020. It aims to expand the role of public
funds (such as foreign reserves and pension funds) in domestic and
international financial markets, to develop the asset-management
sector and to modernize the country's financial markets.
The won was volatile in 2011, weakening sharply from the middle of
the year as hot money flowed out of the country. The government will
seek to reduce the volatility of the local currency in 2012 using a variety
of tools, including controls that slow or prevent sudden capital flows,
and caps on the amount of foreign-exchange derivatives that
institutions can own.
The Bank of Korea will squeeze the rules applying to new foreign-
currency borrowing, with the aim of reducing the risk posed to the
banking sector by excessively high levels of offshore debt.
Foreign currency borrowing will be allowed only for external
transaction, such as import settlements and outward foreign direct
investment.
Banking sector
2007a 2008a 2009b 2010b 2011b 2012c 2013c 2014c 2015c 2016c
Bank
performance
Banking
assets (%
change in
local currency) 10.9 20.3 -1.3 7.0 7.4 7.6 7.1 6.2 10.8 11.4
Bank loans (%
change in
local currency) 13.1 14.6 1.8 7.0 7.4 9.6 10.1 10.2 14.8 15.4
Bank deposits
(% change in
local currency) 6.4 16.5 8.2 6.9 7.3 9.5 9.0 8.1 12.7 13.3
Net interest
income (%
change in
local currency) 8.3 8.8 -7.2 3.0 4.0 6.5 6.0 5.4 8.6 9.7
Net margin
(net interest
income/assets
; %) 2.6 2.3 2.2 2.1 2.0 2.0 2.0 2.0 1.9 1.9
Actual. Economist Intelligence Unit estimates. Economist Intelligence Unit
forecasts.
Source: Economist Intelligence Unit.
The FSS would like to see further consolidation of South Korea's
financial institutions. The July 2011 edition of The Banker, a UK-based
magazine, showed that only nine local lenders are ranked among the
world's top 1,000 banks by core capital. None are included in the list of
the 50 largest lenders.
South Korea has onerous rules restricting bank ownership, which are
compounded by convoluted regulations on buy-out funds and private-
equity funds, involving various different investor qualifications and
asset-allocation requirements. These combine to make bank mergers
and acquisitions a highly complex affair that becomes even more
difficult when foreign stakeholders are involved.
The government's privatization programmed, aimed at selling off large
banks that were nationalized during the 1997-98 Asian financial crisis,
will continue to be delayed unless the FSC succeeds in clarifying
ownership rules, especially for foreign investors. In late 2011 the
authorities failed in an effort to sell their majority stake in Woori
Finance, one of the country's leading banking groups.
There is concern in South Korea about the high dividend payments at
some foreign-owned banks, such as Korea Exchange Bank (KEB,
which is controlled by a US-based private-equity company, Lone Star
Funds). The regulator has said that their profits would be better used to
strengthen capital buffers to meet the stiffer capital-adequacy
standards that will be required under Basel III regulations. A local
lender, Hana Bank, made a W3.9trn bid for KEB in December 2011;
the deal awaits regulatory approval.
Conclusion
Korea has seen a rapid financial development in the past decade in line with
financial liberalization policies that the government rigorously pursued. The
government’s ambition to make Korea a financial hub in Northeast Asia
supported by the self-serving financial industry pushed the financial expansion
far beyond the ability of the Korean economy to deal with risks and dangers
inherent in financial development. Eventually, the Korean financial sector has
become the victim of its own success, suffering ill-fated overstretch.
Benefits of the financial expansion for the overall economy remain elusive.
The widespread belief that financial liberalization would deliver an efficient
allocation of capital and smooth external shocks proved to be an illusion.
Strong foreign presence in the Korean financial markets at best helped
shareholder capitalism to gain a foothold in Korea and mass enthusiasm for
shares broke out that the Korean society has never seen before. Resulting
stock market boom, though, has not served to promote corporate
investments. The increased foreign bank entry has no doubt generated profit-
oriented climate in the Korean banking sector and has played a role as
trendsetters for the operations of domestic counterparts. But in foreign banks,
business strategy determined by their headquarters focuses on opportunities
to maximize profits without reflecting the overall condition of the Korean
economy, thus substantially contributing to market instability.
Furthermore, focus on profit maximization and increased market competition
between domestic and foreign banks as well as between banks and NBFIs did
not improve efficiency, but aggravated distortion in capital allocation. Its
outcomes were household debt-driven asset bubbles and heightened FX
market volatility which became major threats to the overall economy. Another
novelty from the ongoing financial liberalization was that economic policies
has increasingly held captive to dynamics of financial expansion, facing the
government with a daunting task of managing economic dilemma.
The financial hub project, the major driving force of financial liberalization
since 2004, runs increasingly encounter to the overriding objective of Korea’s
economic policies to maintain export competitiveness. Amid the escalating
“currency war” in which Korea has been one of the most active participants,
the Korean government is now compelled to choose one of both strategies
and is more likely to opt for export competitiveness and currency stability
tightening capital controls. Recently the Korean government stepped up
capital controls by restoring a tax on foreign bond purchases and imposing a
levy on non-deposit foreign currency debt held by domestic and foreign bank
branches. Those measures are violating commitments under the current
GATS and in FTAs with US and EU which the Korean government already
signed. The Korean government’s determined action for capital controls was
encouraged by the G20 Seoul Summit agreement in November 2010 that
gave emerging markets the green light to use capital controls to deal with
volatility in their currencies. It just jettisoned its commitment to current WTO
rules and provisions in FTAs arguing that the G20 agreement stands above
other rules. Korea’s relentless efforts in the past decade to emulate US-style
financial system following neoliberal orthodoxy have failed to achieve the
desired results. Negative effects of financial liberalization outweighed positive
effects. Most critical was that the Korean banking sector has receded from its
core function of financial intermediary. Despite rapid expansion of the banking
industry with its strong and well-established nationwide branch networks a
huge vacuum of financial services to marginalized 50 families and SMEs has
emerged which could be only partly filled by the state-owned policy banks. It
also brought about a different kind of crisis-prone financial system.
As a result of ongoing consolidation process commercial banks have grown
too big to fail. This combined with pervasive self-serving behavior, poses
significant threat to financial stability. Paradoxically, the more progress of
financial liberalization, the more government intervention is required to
alleviate market deficiencies and correct market failure in crisis situation.
Korea needs fundamental rethinking of financial development, shifting policy
paradigm from unmanageable financial liberalization to strengthening bank’s
basic role of stable financial intermediation and promoting financial inclusion
of marginalized families and SMEs.
The Narasimham Committee has presented a detailed analysis of various
problems and challenges facing the Indian banking system and made wide-
ranging recommendations for improving and strengthening its functions.
Introduction
The real sector reforms were felt to restructure the Indian banking industry.
The reform measures necessitated the deregulation of the financial sector,
particularly the banking sector. The RBI had proposed to from the committee
chaired by M. Narasimham, former RBI Governor in order to review the
Financial System viz. aspects relating to the Structure, Organizations and
Functioning of the financial system. The guidelines that were issued
subsequently laid the foundation for the reformation of Indian banking sector.
The main recommendations of the Committee were: -
i. Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a
period of five years
ii. Progressive reduction in Cash Reserve Ratio (CRR)
iii. Phasing out of directed credit programmers and redefinition of the
priority sector
iv. Deregulation of interest rates so as to reflect emerging market
conditions
v. Imparting transparency to bank balance sheets and making more
disclosures
vi. Giving freedom to individual banks to recruit officers
vii. Inspection by supervisory authorities based essentially on the internal
audit and inspection reports
viii. A separate authority for supervision of banks and financial institutions
which would be a semi-autonomous body under RBI
ix. Revised procedure for selection of Chief Executives and Directors of
Boards of public sector banks
Reduction of SLR and CRR
The Narasimham Committee had argued for reductions in SLR on the
grounds that the stated government objective of reducing the fiscal deficits will
obviate the need for a large portion of the current SLR. Similarly, the need for
the use of CRR to control secondary expansion of credit would be lesser in a
regime of smaller fiscal deficits. The committee offered the route of Open
Market Operations (OMO) to the Reserve Bank of India for further monetary
control beyond that provided by the (lowered) SLR and CRR reserves.
The arguments for higher or lower SLR and CRR ratios stem from two
different perspectives one which favors the banks, and the other which favors
the bank reserves as a monetary policy instrument. The bank perspective
seeks to maximize "lendable" resources, the banks' control over resource
deployment, and returns to the banks from the "preempted" funds.
Some problems with the stated aim of reducing SLR and CRR
are:
1. The supporting condition of smaller fiscal deficits is not happening
in reality
2. Open market operations have not been used to any significant
extent in India for monetary control. The time required for gaining
experience with the use of such operations would be much more
than 5-6 years.
3. A commitment to a unidirectional movement of these vital controls
irrespective of the effects on, and the response of, other economic
factors (such as inflation), would be unwise.
Investment under Automatic Route with repatriation benefits
Non Resident Indians (NRIs),
Person of Indian Origin (PIOs) and
Overseas Corporate Bodies (OCBs) can invest in shares / convertible
debentures of Indian companies under the Automatic Route without obtaining
Government or RBI permission except for a few sectors where Foreign
Investment Promotion Board (FIPB) / SIA permission is necessary, or where
the investment can be made only up to a certain percentage of paid up
capital.
Investment with Government approval
Investments not eligible under the Automatic Route are considered by the
FIPB, a high Powered inter-ministerial body under the chairmanship of
Secretary, Department of Industrial Policy & Promotion, SIA, subject to
sectoral limits / norms. These investments also enjoy full repatriation benefits.
Other investments with repatriation benefits
Investment in Domestic Mutual Funds
Investment in Bonds Issued By Public Sector Undertakings
Purchase of Shares Of Public Sector Enterprises
Deposits with Companies (For A Minimum Period Of 3 years)
Investment in Government Securities / Shares
Investing in Korea: Asia's New Hub
Korea is known as a world-class industrial base that includes both traditional
steel-making and cutting-edge high-tech consumer products. Hence even
Korean companies are far more advanced than China or India.
During the last 20 years, Korean companies have also matched their
sometimes better-known Japanese rivals.
If yesterday belonged to the Sony Walkman and PlayStation, today belongs to
Samsung's dazzling array of high tech gadgetry.
Today Korea is positioning itself as the hub of Asia: a financial hub, a logistics
hub, and IT hub, a culture hub, a convention hub.
There are 44 cities with populations of more than one million within a four-
hour flight from Seoul. Korea's popular culture is also fast becoming
synonymous with “cool” across Asia. Korean TV and pop stars are the
favorites of teenagers throughout China, Thailand and Hong Kong.
Executive summary
The executive summary of South Korea and Indian Banking sector. We have
worked in this Global Project about the Economic overview of South Korea
and India, and also different banking parameters as per the secondary data
available.
Economic Overview of the South Korea Country – we have studied
Demographic Profile of the South Korea which includes Background ,
Age ,sex ratio, languages, Life expectancy, growth, Literacy, religion.
Economic Geography-it contains different aspects of land and
agriculture of India and South Korea.
o South Korea has a land area of 96,920 square km, with 16.58
percent of arable land. The country's main agricultural crops are rice
and barley. Other product supplied by South Korea includes
vegetables, fruits, root crops, cattle, pigs, chicken, milk, eggs and fish.
o India, on the other hand, adopted an import-substitution policy since its
independence until the early 1990s. Since 1991, India has introduced
wide-ranging economic policy reforms and is moving towards a market-
driven economy.
At present, India is the second fastest growing economy in the world.
Both India and Korea have been getting integrated with the world
economy, enhancing their role in the international economic order.
Overview different economic sector of South Korea
o South Korea's Industry Sector:- South Korea's agriculture contributes
only 3 percent of the nation's total GDP in 2010 and employs 7.3
percent of the country's workforce.
o The industry of South Korea contributes 39.4 percent of the
country's GDP in 2010.
o Rice is the most important agriculture crop of South Korea.
o Electronics boosted the South Korean economy in the 1980s, by
becoming the world's sixth largest manufacturer of electronic goods
o The automotive industry also plays a major role in the South
Korean economy today.
o Services in South Korea contributes 57.6 percent of the nation's
total GDP and employs 68.4 percent of the workforce.
Overview of Business and trade at international level
o South Korean economy and trade – a brief history : 1945, South
Korean economy was mainly agricultural. In the following decades
South Korea developed light industry, consumer products and heavy
industry.
o At the beginning of the 21st century, South Korea is leader in the IT
sector thanks to the aids received by its government. Leading firms in
this sector are Samsung Electronics and LG Electronics.
South Korean economy and trade – a brief history :
The biggest part of South Korean GDP is made up by the service
industry (about 55%)
The second most important South Korean trade sector.
South Korean industries include: the textile and steel sectors
South Korean international trade – Import and Export
o Import – South Korea imports mainly mineral fuels, electric and
mechanical equipment, iron and steel
o Export – South Korea’s most important export partners are again
China, Japan, the European Union and the USA, and the products that
South Korea exports are: electric and electronic goods, machinery,
vehicles, ship and boats.
Overview of Industries trade and commerce
o The Korean financial industry consists of three groups: (i) a central
bank (BOK); (ii) deposit money banks, including commercial and
specialized banks; and (iii) nonbank financial institutions (NBFIs),
which include development, savings, investment, insurance, and other
institutions.
PESTEL ANALYSIS
o PESTLE analysis of South Korea identifies issues that affect the
country’s performance through the prism of current strengths
(strengths), current challenges (weaknesses), future prospects
(opportunities) and future risks (threats).
o The political landscape discusses the evolution of the political scenario
in South Korea in different periods.
o The economic, social, foreign and defence policies are considered in
the political landscape section.
o The social landscape covers the demographics, education and
healthcare scenario in South Korea. The social welfare policies of the
government along with the country’s performance in terms of
healthcare, income distribution.
o The technological landscape discusses the structure and policies in
terms of Intellectual property, research & development, technology.
o The legal landscape examines the structure of the judicial system,
legislation affecting businesses, tax regulations, labor laws, trade
regulations and corporate governance in South Korea.
o The environmental landscape in South Korea discusses the
environmental regulations and policies of the country
Bank is a lawful organization, which accepts deposits that can be
withdrawn on demand. It also lends money to individuals and business
houses that need it.
o The Bank of Korea (BOK) is the central bank of South Korea and
issuer of South Korean won. It was established on June 12, 1950 at
Seoul, South Korea.
Primary Purpose of banking.
o The primary reason of the Bank is to pursue price stability
o The central bank has to safeguard the value of the money by keeping
inflation low.Because the purchasing power of money depends on
prices. When prices rise, the same amount of money buys less than
before.
Organization contains Monetary Policy Committee.
When the Monetary Policy Committee deems it necessary for the
implementation of monetary and credit policies, the Bank of Korea
request the FSS to perform an examination of a bank and other
financial institutions.
Functions Of South Korea Bank
o Issuing Banknotes and Coins
o Formulating and Implementing Monetary and Credit Policy
o . Acting as the Banker's Bank
o Serving as the Government's Bank
o Operating and Managing Payment Systems
o Managing Official Foreign Exchange Reserves
o Monitoring the Financial System and Assessing Its Stability
o Carrying out Economic Education
Banks of south korea
central bank
o Nationwise bank
o Special bank
o Local bank
Types of Accounts:
o Savings
o Time Deposit
o Installment
o Services, Fees & Interest
o Credit Cards
o The Korea Travel Card (KTC)
o Sending Money Home
The Bank of Korea policy objective
The Bank of Korea Act provides that the sole purpose of the Bank is to
contribute to the sound development of the national economy by pursuing
price stability through the formulation and implementation of efficient
monetary and credit policies.
Recently, following the global financial crisis, the Bank of Korea has placed
greater emphasis on heightening the stability of the financial system.
Organization
The Monetary Policy Committee as the policy decision-making body, has
the right to deliberate and resolve on major matters concerning monetary and
credit policy and the operations of the Bank of Korea.
Resolutions at a Monetary Policy Committee meeting are adopted by simple
majority when there are at least five members present. Any member may
submit a proposal with the concurrence of at least one other member.
7 steps of opening a Bank account in India and South Korea
Financial Supervisory system in S. Korea prior to FSS
o Korea financial supervisory system was largely fragmented, with the
banking, securities, insurance, and non-bank sectors individually managed
and regulated by a separate agency. Further the authority of supervision
was split into two governing entities,
1] The supervisory agencies and
2] The Ministry of Finance and Economy.
Establishment of Financial Supervisory Service (FSS)
After the end of the 1980s which marked a time of diversification in the
financial industry and businesses’ crossover into other financial sectors.
Introduction to Indian Banks
With the ongoing financial depression, the position of banks have become all
the more important in the course of working of the money market and hence
the economy of a nation. Banks over the years have become a major aspect
of an economy. However, over time banks have transformed from merely
money generating organizations to a multi tasking entity.
Types of Indian banks:
o Central bank
o Public sector
o Private sector
o Foreign sector
Functions of an Indian Bank:
Banks essentially perform the following functions:
1. Accepting Deposits from public/others (Deposits)
2. Lending money to public (Loans)
3. Transferring money from one place to another (Remittances)
4. Credit Creation
5. Acting as trustees
6. Keeping valuables in safe custody
7. Investment Decisions and analysis
8. Government business
Korea Development Bank
Since its establishment in 1954, the Korea Development Bank, the wholly-
owned Government Bank, has been the nation's leading provider of long-term
funds to major industrial projects.
Korean investments in India
Korea accounts for about 2.64% of total FDI inflows, amounting to US$ 2.601
billion (excluding amount approved for ADRs/ GDRs).
The main sectors attracting foreign direct investment from South Korea are
transportation industry accounting for over 1/3rd of the share, fuels (power &
oil refinery), electrical equipment (computer software & electronics), chemicals
(other than fertilizer) and commercial, office & household equipments.
Indian investment in Korea
With the growing amount of globalization and liberalization, not only Korean
companies are making their presence felt in India, Indian firms too are
establishing themselves in Korea.
The U.S. goods trade deficit with Korea was $13.1 billion in 2011, up $3.1
billion from 2010. U.S. goods exports in 2011 were $43.5 billion, up 12.0
percent from the previous year. Corresponding U.S. imports from Korea were
$56.6 billion, up 15.9 percent. Korea is currently the 7th largest export market
for U.S. goods.
Business opportunities in future
o The Future of Money
o Preparing for future banking crises
o South Korean banks look beyond their borders
o Government action
Future Ambitious plans
Banking more of an opportunity than a challenge in India
CONCLUSION
Economic relations between India-Korea have strengthened over the years.
Currently the trade and investment between the two countries is low
compared to the size and structural complementarities of the two economies.
There has been changing demand structures and comparative advantages of
both economies in complementary sectors and so the trade between the two
countries increases.
India’s exports mainly low value-added and industrial products while India’s
imports from Korea largely consist of relatively high value-added products.
Comparative advantage at both the aggregated and disaggregated levels
shows that Korea has been specializing in a few products which are highly
competitive as India’s exports have been more diversified.
Now a day’s foreign investment from Korea has increased over the years so
the share in total FDI inflows to India has declined. In addition Korean
investment is concentrated in a few sectors such as the electrical equipment
and metallurgical industries. So there are opportunities for small and medium-
sized Korean companies to synergies with Indian SMEs in the areas of semi-
conductors, plastics, auto parts, agricultural instruments, textiles, multi-media,
etc. Since, development of infrastructure in India is a priority and requires
financial markets in India have also overseen a paradigm shift. In the pre-
liberalization era, they were characterized by administered interest rates,
quantitative ceilings, captive markets for government securities, pegged
exchange rate, current and capital account restrictions. Various reforms have
ensured that the markets have made the transition to a regime of market
determined interest and exchange rates, price based instruments of monetary
policy, current account convertibility and phased liberalization of the capital
account.
The rise in the proportion of portfolio investment has also imparted increased
volatility to the total capital flows, which in turn, increases the volatility of the
exchange rate. While the RBI has been playing an important role in the
stabilization of capital flows via sterilization activities, with increased capital
liberalization and global integration, India is now exposed to the volatility of
foreign capital flows and, in general, that of the international financial
environment.
`BIBILIOGRAPHY
http://eng.bok.or.kr/broadcast.action?menuNaviId=1628
http://www.korea4expats.com/article-opening-a-bank-account.html
http://www.theasianbanker.com/bankmetrics/ab500/2011-2012/
asia-pacific-largest-banks
http://ecos.bok.or.kr/flex/EasySearch_e.jsp
http://www.theasianbanker.com/#india
http://ecos.bok.or.kr/jsp/use/economyinfo_e/InSideEcoInfo.jsp