Table of Contents

A New Financial Market Structure for East Asia

A New Financial Market Structure for East Asia

Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang

This book contends that the East Asian financial constitution lacks an appropriate infrastructure, resulting in inefficient allocation of high savings and an over-inflated short-term debt market. It goes on to point out that despite high savings, East Asia’s dependency on financial centers outside the region is also relatively high, and that there is no strong region-wide network to connect various financial centers in East Asia.

Chapter 10: Korea as a Financial Hub

Jang-Yung Lee

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation


10. Korea as a financial hub Jang-Yung Lee 1. OVERVIEW OF THE KOREAN FINANCIAL SYSTEM Korea has a large, diversified financial system, which consists of banks, various non-bank deposit-taking institutions, securities firms, and insurance companies. As shown in Table 10.1, the banking sector has nine nationwide commercial banks, six regional banks, five specialized and development banks, and 42 branches of foreign banks. Compared with the pre-crisis numbers of 16 nationwide commercial banks and 10 regional banks, the banking sector now seems significantly consolidated. Korea’s financial reform between 1998 and 2002 also entailed a significant consolidation of non-bank financial institutions (NBFIs). Over 600 of some 2100 financial institutions have closed down: 467 exited from the industry while 153 merged with other healthier institutions. Since the 1997 crisis, Korea has made major progress in economic adjustment through a wide range of structural reforms in the financial sector. In particular, the efforts to address the pre-crisis problem of non-performing assets and the widespread insolvencies of financial institutions were remarkably successful. As indicated by Table 10.2, the ratio of non-performing loans to total loans in the banking sector was drastically reduced to 1.9 per cent by June 2002 from 8.3 per cent at end-1999. It is worth noting here that the banks’ asset classification standards were upgraded in December of 1999 to bring them into conformity with international best practices.1 As the banks’ asset quality continued to improve, so did their profitability and capital positions, with a return...

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