K-IFRS is taking root

When Korea accepted IMF bail-out package in 1997 to overcome severe financial crisis, Korea carried out a large scale of intense restructuring. As a part of reforming, Korea Generally Accepted Accounting Principles (K-GAAP) was made out to enhance accounting creditability. K-GAAP, however, was not enough to coincide with international standard, so Korean companies used to be derided with backwardness of accounting standards. As a result, Korea International Financial Reporting Standards (K-IFRS) was phased in from 2009, and the year 2011 was the first year for listed companies and financial companies to write the financial reports in accordance with K-IFRS, as a mandatory requirement.

Accordingly, Financial Supervisory Services (FSS) conducted to examine 2011 financial reports. Total 1,600 financial reports which consist of 655 listed on Korean Composite Stock Price Index (KOSPI) and 945 listed on Korea Securities Dealers Automated Quotation (KOSDAQ) were examined with 121 items.

The result of assessment is meant to be satisfactory. The major incompleteness which can affect users to misunderstand accounting information is not found. Compared to the first quarterly report in 2011 when the major incompleteness was found in 111 reports, this result deserves to be admirable. As a matter of fact, average number of errors per company committed was found only 4.5. The number of financial reports without any errors was as many as 288. The following table is a summary of the examination result.

Section

Market

Volume of Capital (Billion KRW)

KOSPI

KOSDAQ

Less than 100

100-500

500-2000

Over 2000

Average error/company

3.8

5.0

5.0

4.3

4.1

3.1

Total No. of company

655

945

671

646

183

100

According to the table, the smaller sized companies tend to make more errors than the bigger sized companies. Therefore, FSS will keep giving advices and instruction for those imperfect companies continuously. To modify the found errors, FSS is noticing privately for the companies to encourage modifying their own record.

Furthermore, there is an increasing trend that even not listed companies voluntarily make financial reports in conformity with K-IFRS voluntarily. Generally, adopting K-IFRS from 2011 is mandatory only for the listed companies and financial companies. However, despite of needlessness, 1,142 unlisted companies wrote their financial reports with using K-IFRS in 2011, and additional 261 companies are prospected to adopt K-IFRS in 2012. The major reasons for such trends to adopt K-IFRS voluntarily, notwithstanding the high converting cost, are the accordance of accounting standard between the holding company and the subsidiary company, preparation for the list, enhancing of accounting transparency and improvement of company image.

Korean financial authorities have made endeavours to achieve the competitiveness of accounting system. These endeavours are resulting in the improvement of accounting creditability of Korean companies. Also, it is positive sign for many unlisted companies to adopt K-IFRS spontaneously. At this rate, it is matter of time for IFRS to become established in Korea.

Chaehack Suh (chaeahck.suh@gmail.com)

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Seoul hosts a major international pension conference in 2013


In 28-30 October 2013, Seoul will host the annual general meeting of the International Organisation of Pension Supervisors (IOPS) and the OECD/IOPS Global Forum on Private Pensions. The decision was made at the meeting of the IOPS Executive and Technical Committees, held in 5-6 June 2012.

For those who are not well upon the IOPS, the IOPS is a Paris-based international body of private pension supervisors with membership of 66 countries. The Organisation was established in July 2004, following the dissolution of the International Network of Pension Regulators (INPRS), for the need of more formal and independent organization. This international pension organisation’s major goal is to improve the supervision of private pension systems, and its specific aims are; 1) setting the international standards on pension supervision, 2) promoting cooperation and exchanges of relevant pension bodies, 3) providing a forum for private pension policy dialogue and information exchange, 4) working with relevant international bodies, e.g. improving statistical collection and analysis, and 5) distributing, communicating, and collecting such information.

Since its inception, the IOPS has been working closely with OECD with regards to private pension systems. The two organizations have annually held the joint Global Forum on Private Pensions since 2005. As for this year’s Forum, it is scheduled to be held in 23-24 October in Santiago, Chile under the theme of “Making Funded Pensions Work.”

Against the backdrop of growing pension market in Korea, and increasing challenges to private pensions around the world – for which the OECD recommended countries to seek later retirement and extend the coverage of private pensions (Pensions Outlook, June 2012) – the Financial Service Commission is looking forward to promote international exchanges of private pension issues and experiences, and contribute to improvement of pensions system by hosting the IOPS conferences in Seoul.

Asia Financial Cooperative Network

Seok-dong Kim, the chairman of Financial Services Commission (FSC) visited Thailand and Hong Kong from June 9 to June 13. This business trip was an extension of his endeavour to establish Asia Financial Network including previous business trips to Mongol (September 2011) and Vietnam and Indonesia (March 2012).

It was a meaningful achievement to set up a cooperative system with Thailand and Hong Kong. Above all, Thailand has been Korea’s sincere allied nation since Korean War. In 1958, after establishing diplomatic ties, Thailand is now the 17th export country ($8.4billion), the 22nd import country ($5.4billion) and the 21st foreign direct investment country ($0.176billion).  Also, it is needless to say the importance of Hong Kong because, as a centre of global finance and trade, there are a lot of global finance companies including 34 Korean companies.

Beginning his first schedule, Kim reinforced the corporation between Korean and Thai financial authorities. In detail, FSC and Thai financial authorities such as Office of Insurance Commission (OIC) and Securities and Exchange Commission (SEC) signed MoU to strengthen cooperation. Considering geopolitical factor of Thailand which is located in the centre of Indochina Peninsula, close cooperation might play an important role for Korea to advance into Asia rising countries such as Laos, Cambodia and Myanmar. According to this MoU, both authorities can exchange information about financial policies and supervisions. Also, they agreed to share political experiences and professionalism through regular meeting. Especially, at the meeting with Vorapool Socatiyanurak, secretary general of Thai SEC, FSC agreed the close cooperation to foster capital market and establish financial infrastructure in ASEAN and Greater Mekong Subregion (GMS).  From this, both authorities expect for Korean private company to advance into Thailand actively.

In Hong Kong, Kim made an effort to establish the market stabilization plan against the Eurozone crisis. Visiting Hong Kong Monetary Authority (HKMA) and Hong Kong Securities and Futures Commission (HKSFC), he shared opinions about Euro crisis and tried to seek cooperative counter plan. In particular, HKSFC conceded the necessity of reinforcement of cooperation, so acceded to cooperate with signing MoU in the near future as well as currently availing through International Organization of Securities Commissions (IOSCO) and APRC.

During the business trip, Kim also held a meeting with local advanced businessmen in both Thailand and Hong Kong. The participants highly requested for Korean government to support the companies’ advances and the local business activities continuously. They said the support is critical because Thailand and Hong Kong are located in the centre of Indochina and the core of Chinese economic region respectively.

FSC evaluated this cooperation with Thailand and Hong Kong as a promising achievement because of their geopolitical advantages. With the previous business trip to Mongol, Vietnam and Indonesia, this business trip has a significant meaning of expanding Asian Financial Cooperative Network to Indochina Peninsula and Hong Kong (China). FSC will keep strengthening financial diplomacy concentrating on the rising countries to support Korean companies’ advances to the global market.

Chaehack Chad Suh (chaehack.suh@gmail.com)

Attracting Private Capital to Green Growth

Since President Lee Myung-bak declared ‘Low Carbon Green Growth’ as the country’s new vision, Korea has been trying to be a fast mover under a comprehensive plan to transform the nation into an economy powered by green technologies. To achieve the goal of being an initiative country, the Financial Services Commission (FSC) and relevant agencies have prepared financing plans, which is called the green financing, to promote green industries. Though many efforts to propel, some business participants complain that the current governmental support is not enough to induce private investment. Moreover, the recent economic slowdown and Euro crisis make the situation worse. Under these circumstances, the FSC and relevant agencies examined the green financing policies and announced additional measures on May 2.

The overall result of the current policies provide systematic frame for green financing. Firstly, green business firms get advantages to receive both public and private loans. The amount of policy loans to green business firms has been increased to 8 trillion won in 2011. The amount of guaranteed private loans by Korea Credit Guarantee Fund and Korea Technology Finance Corporation (KIBO) also has been increased 7.8 trillion won per performance in 2011. In addition to this, those companies are also benefited by direct financing from stock and share markets. The green funds, which invest to green technologies, accumulated about 5 trillion won in 2011. To induce private capital through a bond market, Primary CBO has been issued. A KOSDAQ entry barrier for green business firms was alleviated. Also, The Green Industry Index was created, and the Green ETF was listed. Lastly, infrastructures such as the Green Certification System and the Green Finance Portal have been strengthening to create a demand for green financing.

Despite of all of these achievements, highly dependent of policy loans and low inflow of private capital still need to be improved. Because of long payback period and uncertainty, it is difficult for private capital to invest to green industries. Policies which can guarantee the long term functionality and future benefits of green technologies need to be implemented to attract private capital.

In order to compensate for the insufficiency in current green financing policies and support the green growth, the FSC and relevant agencies announced a strategy to promote an influx of capital and to support financing and funding.

First of all, forming a market of green industries will be supported. The biggest change is the expanding factoring finance, which is not only for LED industry but also for other green industries. If the companies cannot use factoring system, debt ratio which makes it difficult to collect invested money may seriously rise. Therefore, the Korea Finance Corporation (KoFC) will adjust the maximum limit of the factoring financing from 35billion won to 70billion won in 2012. Besides, solar energy businesses and energy service companies can get factoring benefits.

Secondly, development circumstances of green business companies will be improved. The FSC will give incentives to financial companies which have high loan performances with certified green technologies. This will make easier for green business firms to be invested by private capital. Furthermore, small and medium enterprises (SMEs) which have potentials to develop green technologies will be supported in every step of R&D stages. Along with these, KONEX, new market for SMEs, will be one of their sources for financing.

Third, supporting exports of green related products will be enhanced. FSC will encourage creating insurance products which defend the risk of long payback period, which can be helpful for solar energy industries. The insurance is critical for the green business because many SMEs are losing their opportunities to show even prototype to buyers due to lack of money. This kind of insurances will promote Korean companies to enter into expanding global new renewable energy market.

Lastly, green financing will be highly highlighted. KIBO and KoFC will establish new organization which is exclusively responsible for the green financing. Policy loans for green finance will be increased up to 21.4 trillion won in 2012. Green fund which is investing to green companies’ stocks and shares will grow as well.

It was meaningful to examine how green growth policies have been effective as less than one year of tenure of the president is left. With all the efforts to promote the green growth, it is ready for Korea’s green industries to enter the stage of growth.

Chaehack Suh(chaehack.suh@gmail.com)

FSC decides to continue monitoring finance market trend

Finance Services Commission(FSC) started to monitor international finance market trend last year and is planning to keep this regime. There is certain reason since the global market is unstable dealing with serious sovereign debt crisis.

SFC clarified in ‘Europe finance crisis status and major risk factor check’ report announced on May 21, current Europe’s financial crisis is related with real market recession, it is tough to resolve in a recent period.

Political conflict betweenGermany and France just let jitters increase over how Europe’s banking system would be affected by an exit ofGreecefrom the eurozone. What’s more serious is the fact that the risk will spread to other countries including Korea.

SFC expected that after the Greek election next month, the new cabinet would turn into easing austerity or request changes of bail-out terms, it seems highly likely to cause conflicts with EU, IMF, and ECB.

The risk factors ofEurope’s financial crisis are the difficulty of recovery because of continuing austerity of nations in the real market and the concern that might fall into double-dip since it is hard to ease the internal imbalance. It is also possible a considerable number of member countries might not comply with the new Fiscal Compact due to increasing unemployment rate and deteriorating fundamentals.

At fiscal prospects, the flow of working on deficit-reduction, slack in business, decrease in tax revenue to the increased deficit and rising interest rate of sovereign-debt leading to an increase in fund-raising expense with Spainas the center are the other risks.

There is another possibility that fiscal crisis will deepen if global credit appraisers lower the eurozone contries’ sovereign-credit rating. Then in will be difficult to force fiscal retrenchment and recent incidents such as change of government in France, publication of zero interest rate bond in Germany weakens the power to go with the new fiscal compact.

Instability of eurozone might cause the ECB’s sharp deleveraging. The damage in global market is inevitable, however, it seems not as serious as the lyman tragedy.

Although Korea’s foreign loan status has been improved as non-european funds fill in the vacancy of european funds, it still needs to be observed carefully to prevent critical situations.

JungHwa Han(g.fire@ymail.com)

Korea enters the IOSCO Board as a representative of the APRC

On May 16th, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced that they will get through the IOSCO Board as a delegate of the Asia Pacific Regional Committee (APRC) during the 37th annual general meeting in Beijing.

The International Organization Of Securities Commissions (IOSCO) was founded in 1974 to maintain the sound capital market, exchange information among supervisory institutions and enhance the mutual cooperation with the members. In 2007, the G20 required the international organizations, which are mostly based on advanced countries, to expand the emerging markets to cope with the international financial crisis. To meet the requirement, the IOSCO decided to establish the Board that includes the members from the emerging markets. With 32 members, the IOSCO Board will play a pivotal role such as setting the standard to supervise the international stock exchange and seeking some effective ways hereafter to regulate the capital market.

 <The Organization Chart of the IOSCO>

 

Source. Financial Services Commission

Both the FSC and FSS put forth a multilateral effort into this selection to gain supports from the major members; 1) developing our capital market and approaching to globalization, 2) gaining ample experience of supervising international finance, 3) hosting primary IOSCO meetings and 4) carrying out the international supervision standard. As a result, Korea was finally chosen to enter the IOSCO Board with Singapore and Pakistan as a delegate of the APRC.

The debut will allow Korea to work as one of the members of the advanced countries in the international finance organizations. As well, Korea will be able to strengthen its position and excercise the right to speak more actively in the international society.

 안 소 빈 / An, So Bin (sbann629@hotmail.com)

Promoting check cards in Korea

South Korea’s financial authorities outline to influence the public to console their operation of credit cards to converse with increasing household debts. Instead, the practice of check cards — which refer to cards including uses of both credit and debit cards — will possibly be encouraged. In coordination with the Ministry of Strategy and Finance, the FSC has planned methods for households

 While check cards have the benefit of hindering holders from purchasing carelessly as the paying system is focused on their bank balances, the nation found the check card use remain at less than 10 percent of the credit card use. To inspire the public’s check card handling, the FSC has been in meeting with the National Tax Service to provide check cardholders more favors in yearly income tax deduction. The income tax deduction rate for check cardholders recently reaches 25 percent, while the rate for credit cardholders bears at 20 percent. The financial authorities formulate to increase the rate for check card usage more from the 25 percent level. In most developed nations, check card use accounts for about 50 percent of the total payment cards, comprising credit cards, according to the FSC. FSC mentioned that in the situation under credit card issuers are engaging in heated competition again, there is a possibility that the nation would see the various credit defaulters surge. Aside from the promotion for the public, it is required to instruct credit card companies to raise the percentage of issuance of check cards.

 As a promotion degree, the FSC has previously ordered credit card corporations to lessen payment service payments cost on retail stores for customers’ check card usage. On the other hand, the FSC also outlines to decrease the maximum level of interest rate provided by private moneylenders from 44 percent to 39 percent per annum. Moreover, even people in lower credit standings could find their credit scores increased if they honestly pay public utility fees under the broad procedure. According to the Financial Supervisory Service, credit card companies’ combined assets, combining insolvent loans, exceeded 76.5 trillion won in 2010, after continued to increase over the past few months. The number of card salesperson also came to about 50,000 as of the end of 2010, up 30 percent from 35,000 a year earlier.

 The competition led to sharp increases in card issuances and service loans, similar to the last industry crisis, in which the then-largest issuer LG Card and some others had to be rescued with creditors’ money. The trend is more risky coming on top of already high household debt. With this enhancement of various advantages and expansion of scope available for settlements, the number of check cards in South Korea is forecasted to grow in large scope. This environment will stimulate growth in such cards as they have comparatively less delinquency risk involved to issuers. However, the growth rate of other cards like credit cards may be adversely affected by recession. Issuers are hesitating in issuing new credit cards due to the fear of bad debts.

JiMin Park (parkjm0718@naver.com)