Download KOREA

SEOUL FINANCIAL FORUM
Development of Korea As An
International Financial Hub
November 20, 2003
INTERNATIONAL FINANCIAL CENTER
• What ?
• Why ?
• When ?
WHAT ?
• Domestic Financial Center ?
• International Financial Center ?
FINANCIAL INTERMEDIATION
RAISING CAPITAL . . .
. . . ALLOCATING IT TO PRODUCTIVE USES
FINANCIAL INTERMEDIATION
COMPANIES
DEPOSITORS
W
W
FINANCIAL INTERMEDIATION
COMPANIES
DEPOSITORS
W
USES
W
SOURCES
DOMESTIC FINANCIAL CENTER
DOMESTIC
DEPOSITORS
DOMESTIC
COMPANIES
W
USES
W
SOURCES
INTERNATIONAL FINANCIAL CENTER
INTERNATIONAL
DEPOSITORS
INTERNATIONAL
COMPANIES
W
USES
W
SOURCES
FINANCIAL CENTERS
POPULATION
Millions of People
300
290.3
250
200
150
127.2
100
60.1
48.3
7.4
4.6
3.9
2.5
HONG KONG
SINGAPORE
IRELAND
DUBAI (UAE)
50
KOREA
BRITAIN
JAPAN
USA
0
Source : CIA World Factbook
INTEGRATED FINANCIAL CENTER
DOMESTIC
DEPOSITORS
DOMESTIC
COMPANIES
W
USES
W
SOURCES
INTERNATIONAL
DEPOSITORS
INTERNATIONAL
COMPANIES
W
USES
W
SOURCES
WHY ?
• Because We Can . . .
• Because We Must . . .
• Because We Will Benefit . . .
BECAUSE WE CAN . . .
• We Have The Basics . . .
• We Have Been Making Progress . . .
• We Are Very Close To Realization . . .
MARKETS FOR CAPITAL
VISION
INTEGRATED STRATEGY
DEBT
MARKETS
EQUITY
MARKETS
DERIVATIVES MARKETS
FX MARKETS
INTERNATIONAL FINANCIAL CENTER
VISION
INTEGRATED STRATEGY
COMMERCIAL
BANKS
DEBT
INSURANCE
ASSET
MARKETS
COMPANIES MANAGERS
EQUITY
BROKERAGE INVESTMENT
MARKETS
& SECURITIES
BANKS
HOUSES
DERIVATIVES MARKETS
FX MARKETS
SERVICE
PROVIDERS
INTERNATIONAL FINANCIAL CENTER
VISION
INTEGRATED STRATEGY
COMMERCIAL
BANKS
DEBT
INSURANCE
ASSET
MARKETS
COMPANIES MANAGERS
EQUITY
BROKERAGE INVESTMENT
MARKETS
& SECURITIES
BANKS
SERVICE
PROVIDERS
HOUSES
DERIVATIVES MARKETS
FX MARKETS
TRANSACTION INFRASTRUCTURE
ACCOUNTING STANDARDS - DISCLOSURE - CORPORATE GOVERNANCE
SKILLS - EXPERIENCE - LICENSING - LANGUAGE
FIDUCIARY RESPONSIBILITY - PROFESSIONAL STANDARDS & PRACTICES - COMPLIANCE
SOUND REGULATORY INFRASTRUCTURE - EFFECTIVE SUPERVISION - INDUSTRY CONSULTATION
ROBUST CONTRACT LAW - EFFICIENT DISPUTE RESOLUTION MECHANISMS - PREDICTABLE ENVIRONMENT
FINANCIAL REFORM IN KOREA
BANKING REFORMS IN KOREA
1997
1999
2001
Underdeveloped
Highly Developed
1
2
Congo
Thailand Korea
Indonesia
3
4
Japan
5
6
7
8
Scandinavia
Singapore
9
10
Netherlands
Canada
France
United United
States Kingdom
Key Criteria
1. Underlying
credit rating
skills and risk
management
skills
2. Strength and
consistency
of regulation
and
supervisory
approach
3. Breadth and
depth of
financing
options
available
(e.g., capital
markets –
long-term
debt market)
4. Domestic
players
underlying
strengths
and
competitiveness on
global scale
5. Underlying
infrastructure
efficiency
(e.g.,
payments and
exchanges)
Source: McKinsey & Co.
ASIAN FINANCIAL INSTITUTIONS – TOP 100
TOP 100 ASIAN FINANCIAL INSTITUTIONS
Market
value
(USD
million)
1997
• Mitsubishi Tokyo Financial Group
• Sumitomo Mitsui Banking Corp.
• UFJ Holdings
56,799
32,035
26,344
In 1997 there was no Korean player
in the Top 100
How Korea
has changed
None !
Market
value
(USD
million)
2001
• Mitsubishi Tokyo Financial Group
• Nomra Holdings Inc.
• Sumitomo Mitsui Banking Corp.
34,313
25,179
16,468
In 2001 there were 8 Korean
companies ranked in the Top 100
with Kookmin Bank ranked in the
Top 20
14. Kookmin Bank Corp.
23. Samsung Securities Co. Ltd.
38. Chohung Bank
44. Hana Bank
66. Daeshin Securities Co.
73. Daewoo Securities Co.
82. KorAm Bank Ltd.
86. Good Morning Securities
7,132
3,402
2,140
1,687
1,232
1,167
963
911
* In terms of market capitalization, at the end of 1997 and 2001
Source : Global Vantage; McKinsey analysis
RELATIVE POSITIONS
Development Relative to Best Possible
DEBT MARKETS
EQUITY MARKETS
FX MARKETS
DERIVATIVES MARKETS
MARKET PARTICIPANTS
STRUCTURAL BASE
LEGEND
SHANGHAI
KOREA
LONDON
OPTIMAL
TOKYO
SINGAPORE
HONG KONG
RELATIVE POSITIONS
Development Relative to Best Possible
DEBT MARKETS
EQUITY MARKETS
FX MARKETS
DERIVATIVES MARKETS
MARKET PARTICIPANTS
STRUCTURAL BASE
LEGEND
SHANGHAI
KOREA
LONDON
OPTIMAL
TOKYO
SINGAPORE
HONG KONG
BECAUSE WE MUST . . .
• Global Environment . . .
• Regional Environment . . .
• Domestic Environment . . .
THE “GLOBAL ECONOMY”
All the rest
is only 16%
NORTH AMERICA
400 million people
1999 GDP = $10.4 trillion
EUROPE
580 million people
1999 GDP = $9.4 trillion
NORTH ASIA
1,470 million people
1999 GDP = $6.3 trillion
34% of World GDP
30% of World GDP
20% of World GDP
THE “GLOBAL ECONOMY”
NORTH AMERICA
400 million people
1999 GDP = $10.4 trillion
EUROPE
580 million people
1999 GDP = $9.4 trillion
NORTH ASIA
1,470 million people
1999 GDP = $6.3 trillion
34% of World GDP
30% of World GDP
20% of World GDP
THE “GLOBAL ECONOMY”
THE “GLOBAL ECONOMY”
GLOBAL CHALLENGES
• Poor Returns For Investors
– Interest Rates Low
– Stock Markets Weak
– Bond Markets Under Pressure
• Corporate Governance Issues . . .
• Accounting Practices . . .
• Fund Management Issues . . .
• Mature Economies . . .
A Lot Of Money
Looking For More Trust, Less Danger,
and Better Returns
WHERE THE ECONOMY IS . . .
WHERE THE ECONOMY IS . . .
WHERETHE
THE ECONOMY
ECONOMY ISIS. .. .. .
WHERE
WHERETHE
THE ECONOMY
ECONOMY ISIS. .. .. .
WHERE
CHINA
– WHERE
ECONOMY
WHERE
THE THE
ECONOMY
IS .IS. .. . .
CHINA – WHERE THE PEOPLE ARE . . .
CHINA – ECONOMIC REGIONS . . . ?
CHINA – ECONOMIC REGIONS . . . ?
THE GLOBAL ECONOMY
Share of World GDP 2002 - 2040
Percent of World GDP
100%
90%
Rest of World
80%
70%
Europe
60%
Other North-East Asia
50%
China
40%
Japan
30%
20%
North America
10%
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
Source : World Bank, Market Force Projections - before inflation, at constant FX rates
REGIONAL FINANCING
FOREIGN CURRENCY RESERVES
Top 4 Countries in the World
Japan
$ 460.7 billion
China
$ 258.6 billion
Taiwan
$ 157.0 billion
Korea
$ 116.7 billion
____________
TOTAL :
$ 993.0 billion
Source : Korea Ministry of Finance & Economy, September 2002
KOREAN ECONOMY
Real GDP
Billions of 1995 Korean Won
10,000,000
1,000,000
CAGR
(1962 - 1997)
8.2%
CAGR
(1962 - 1979)
9.2%
CAGR
(1980 - 1997)
8.0%
100,000
CAGR
(1953 - 1962)
3.9%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
10,000
Source : Bank of Korea (New Series)
KOREAN ECONOMY
Real GDP
Billions of 1995 Korean Won
10,000,000
1,000,000
CAGR
(1962 - 1997)
8.2%
CAGR
(1962 - 1979)
9.2%
CAGR
(1980 - 1997)
8.0%
100,000
CAGR
(1953 - 1962)
3.9%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
10,000
Source : Bank of Korea (New Series)
LITTLE BALLERINA ON A TIGHTROPE
Real GDP
Billions of 1995 Korean Won
10,000,000
1,000,000
CAGR
(1962 - 1997)
8.2%
CAGR
(1962 - 1979)
9.2%
CAGR
(1980 - 1997)
8.0%
100,000
CAGR
(1953 - 1962)
3.9%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
10,000
Source : Bank of Korea (New Series)
THE ELEPHANT HAS AWAKENED . . .
Real GDP
Billions of 1995 Korean Won
10,000,000
1,000,000
CAGR
(1962 - 1997)
8.2%
8% PER ANNUM
GROWTH RATE
CAGR
(1962 - 1979)
9.2%
CAGR
(1980 - 1997)
8.0%
100,000
CAGR
(1953 - 1962)
3.9%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
10,000
Source : Bank of Korea (New Series)
DANCING ON THE BACK OF THE ELEPHANT
Real GDP
Billions of 1995 Korean Won
10,000,000
8% PER ANNUM
GROWTH RATE
1,000,000
CAGR
(1962 - 1997)
8.2%
CAGR
(1962 - 1979)
9.2%
CAGR
(1980 - 1997)
8.0%
100,000
CAGR
(1953 - 1962)
3.9%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
10,000
Source : Bank of Korea (New Series)
I’d like to talk to you
about your mother . . .
Others
Promissory Note
CD
Corporate Bonds
CP
Short-Term
Bonds
Short-Term
Lending
Financial Bonds
RP
Government
Bonds
Venture Capital
Current Deposits
Stocks
300
Bank Trust
Investment Trust
Long-Term Bonds
Insurance
Products
Time Deposits
Deposits
KOREAN INDIVIDUALS
Financial Assets by Type - December 1998
Krw trillions
400
Krw 1,152 trillion
200
100
0
Source : Bank of Korea
KOREA - INTEREST RATES
3-Year Corporate Bond Rate
Percent
35
30
25
20
15
10
11% – 15%
7% – 11%
5
5% – 8%
12/1/02
12/1/01
12/1/00
12/1/99
12/1/98
12/1/97
12/1/96
12/1/95
12/1/94
12/1/93
12/1/92
12/1/91
12/1/90
0
Source : Bank of Korea
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
RELEASE OF THE CAGED TIGER ?
Index 100 = 1977
10,000
1,000
100
10
KOREA
• LARGE AMOUNT OF ASSETS WITH FINANCIAL INSTITUTIONS
• LARGE, ACTIVE DOMESTIC STOCK MARKET
• LARGE, ACTIVE DOMESTIC GOVERNMENT BOND MARKET
• LARGE DOMESTIC CORPORATE BOND MARKET
• LARGE AND GROWING DOMESTIC DERIVATIVES MARKET
• MANY DOMESTIC AND INTERNATIONAL FINANCIAL
INSTITUTIONS IN ALL SECTORS
• SIGNIFICANT EFFORTS TO REFORM DOMESTIC MARKET
PRACTICES AND BEHAVIOR
KOREA
• MASSIVE LIBERALIZATION OF FOREIGN INVESTMENT
• HUGE INCREASE IN FDI
• SUBSTANTIAL FOREIGN PORTFOLIO HOLDINGS
• CONTINUING IMPROVEMENTS IN “HONEST ACCOUNTING”
BUT :
• MANY CORPORATES STILL FAIL TO EARN SUFFICIENT
RETURNS TO REPAY THEIR DEBT – “INSOLVENT”
• MANY CORPORATES FAIL TO GENERATE SUFFICIENT
RETURNS TO JUSTIFY EQUITY INVESTMENT
• RISKS CONTINUE
• INADEQUATE RETURNS
UNBALANCED
YIN ANDUSERS
YANG
DOMESTIC
INTERNET
DOMESTIC CHALLENGES
• Poor Returns For Investors
– Interest Rates Low
– Stock Markets Weak
– Bond Markets Under Pressure
• Corporate Governance Issues . . .
• Accounting Practices . . .
• Fund Management Issues . . .
• Maturing Economy . . .
A Lot Of Money
Looking For More Trust, Less Danger,
and Better Returns
CHANGING WORLD
FINANCIAL INTERMEDIARIES
MUST CHANGE SIGNIFICANTLY
– To Survive in the Future World
– To Better Serve Korean Families
– To Create Real Value
RE-BALANCING
YIN ANDUSERS
YANG
DOMESTIC
INTERNET
KOREA’S FUTURE
Achieving the economic level that Korea deserves over the next decade
LEADING COUNTRIES
GDP Per Capita : 1999
GDP per capita in U.S. Dollars (billions)
40,000
30,000
20,000
10,000
South Korea
Belgium
Australia
Netherlands
Canada
Italy
France
United Kingdom
Germany
Japan
United States
0
Source : WEFA
BECAUSE WE WILL BENEFIT . . .
• GDP . . .
• Employment . . .
• Knowledge-Based Economy . . .
• Survive The Global Storms . . .
GDP . . .
+ Krw 33 trillion in 2002 Equivalent
+ 5.6% Value-Added Impact
NOTE : Only reflects primary effects – does not include
secondary benefits from improved domestic capital allocation
and enhancement of corporate sector
EMPLOYMENT . . .
+ 450,000 Jobs
(2.0)% Reduction in Unemployment Rate
KNOWLEDGE-BASED ECONOMY . . .
• Intelligent Financial Intermediation is a Vital
Component of a Knowledge-Based Economy
• Other Sectors of Knowledge-Based Economy
Can Only Be Fuelled by Advanced Financial
Intermediation
SURVIVING THE GLOBAL STORMS . . .
• A Strong Financial Sector is Vital to
Survive The Coming Global Storms
Benefits of an International Bond Market
Creates Strength and Stability in All Financial Markets
Creates Long Term Stable Investment Opportunities for Insurance
Companies, Banks and other Financial Institutions
Strengthens Pension Systems
Improves Corporate Balance Sheets
Benefits of International Asset Management
Attracts high-quality personnel to Korea
Establishes new bench-marking in credit control, analysis,
portfolio management, ethical conduct
Gives domestic companies greater access to foreign capital
Benefits of Liberalized FX Market
Expands access to the global capital pool
Allows internationalization of the Bond Market
Allows expansion of the fund management market
Expands the internationalization of the Equity Market
Enhances Korea’s advanced image and attractiveness to foreign
corporations and regional headquarters
Benefits of an Open Legal Market
Increases the pool of available legal talent in Korea (reduces
conflicts)
Increases GDP and tax revenues from legal services
Permits fair competition among domestic and international law
firms
Benefits of an Regulatory Globalization
Permits financial institutions to operate in a consistent predictable
environment
Improves Competitiveness of Domestic Financial institutions
Improves Competitiveness of Domestic Corporations
Creates an environment where foreign financial institutions will
want to operate
SPECIFIC ACTIONS NEEDED
Internationalize the Bond Market
Internationalize the Asset Management Market
Liberalize Foreign Exchange Controls
Internationalize the Legal Market
Bring Global Standards to Regulations and Regulatory Oversight
An International Financial Center in Korea Is :
A Realistic and Achievable Goal
And
A Benefit to All Sectors of the Korean Economy
WHEN ?
• Change Will Take Time . . .
• Others Are Not Standing Still . . .
• WE MUST START RIGHT AWAY . . .
With The Same Energy And Vigor That
We Give To Other Core Initiatives !
KOREA – VISION OF THE FUTURE
Enough of The Speeches . . .
– IT’S TIME FOR ACTION !
We Can Make The Speeches
Again Afterwards
SEOUL FINANCIAL FORUM
CLIMBING THE
MOUNTAINS OF THE FUTURE
HELPING KOREA
TO REACH THE TOP