Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang
Chapter 10: Korea as a Financial Hub
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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