South Korea

Overview

Official name : Republic South Korea

Government : Parliamentary republic

Head of State : President Moon Jae-in

Capital City : Seoul

Main towns : Busan, Incheon, Daegu, Daejeon, Gwangju

Land area : 99,408 sq km

Population : 51.64m (2018)

Climate : Continental, with extremes of temperature. Weather in Seoul (altitude 87 metres): Hottest month, August, 22-31 C (average daily minimum and maximum); coldest month, January, minus 9-0 C; driest month, February, 20 mm average rainfall; wettest month, July, 376 mm average rainfall

Currency : Won (ISO currency code: KRW)

Exchange rate USD 1=KRW 1,192.22 (August 2020)

Measures : Metric system. Some local measures are: 1 chungbo=0.992 ha, 1 suk=100 dai=180.39 litres, 1 kwan=1,000 don=3.75 kg

Language : Korean

Time : 9 hours ahead of GMT

Regulatory Scheme

There are three entities responsible for financial regulation in South Korea , The Ministry of Finance and Economy (MOFE), the Bank of Korea (BOK), and The Financial Supervisory Commission (FSC). The MOFE and BOK operate the South Korean foreign-exchange system. The BOK acts as the central bank of Korea , while the MOFE implements the direct exchange-rate policy. The BOK controls foreign reserves, intervenes in forex market operations and oversees forex banks, brokers and moneychangers. It is also responsible for the management of transactions related to foreign trade and capital movements. It issues permits for overseas investments by South Korean firms and provides guidance and foreign-currency loans to banks. The BOK must clear all non-commercial bank loans and the issuance of foreign-currency-denominated paper, as well as issuance of offshore bonds or equity-linked paper, and offshore real estate investments. The direct exchange rate policy in South Korea allows the MOFE to stop forex transactions in case of emergencies, impose or lift restrictions on forex deals, and authorize forex banks to do business. The Financial Supervisory Commission (FSC) supervises financial institutions engaging in forex business under prudential regulations. Banks must also submit annual reviews of their client's forex risk to the FSC for approval.

Banking

The banking sector in South Korea has changed dramatically since the Asian financial crisis in 1997-98. There has traditionally been a large number of NPL's in the banking industry. The creation of the FSC and the Financial Supervisory Service has been important to the development and restructuring of the South Korean banking sector. There has been a strong push recently towards meeting international capital adequacy ratios under Basal I and II. Close supervision over the industry has helped to make meeting these standards possible. Recent improvements in risk management and prudential regulation have also been seen. There has been good growth in the banking sector as a result of consolidation and the willingness of entities to shut down non-viable banks. There has also been a recent increase in the number of foreign players that have entered the markets because of government privatization and market liberalization.

Stock Exchange

The South Korean capital exchanges have been developing quickly and steadily over the past 5 to 10 years. The government visualizes the South Korean markets as a tool for the development of the economy. It has been seen as an important source of financing for local companies but it is also seen as a vehicle to drive reformation of the banking industry by reducing the number of loans made by banks and increasing lender efficiency and sophistication through healthy competition. The South Korean stock exchange is open to foreigners and has seen increased volume of foreign investment in recent years. The bond markets have also been developing and the government now issues treasury bonds with various maturities on a regular basis. A futures market in Busan has seen steady growth since its inception in April 1998.

Insurance

The South Korean insurance industry is one of the largest insurance markets in Asia , and ranks as the sixth largest market in the world in terms of premium income. The insurance industry is a driving force behind the South Korean economy and is essential to national finance. Compulsory insurance exists for third party liability for motor, gas accidents, sports, ferry and recreational facilities. Fire insurance for specified types of buildings such as hospitals, hotels and apartment blocks, atomic energy risks and worker's compensation is compulsory as well. In order to stem the effects of NPL's the South Korean government has made a strong push to restructure the industry and de-regulate insurance premiums. In doing so they shut down several insurance companies operating in the country and dramatically increased their efforts to monitor other insurers. The South Korean insurance sector is open to foreign participation, however it is dominated by domestic entities. It is a highly concentrated market controlled by two major firms that predominate more than 50% of the industry. (There has been increased competition in recent years as a result of an influx in online insurers who can offer cheaper rates. Increased competition threatens the previous practice by players to deviate by no more than 15% from reference rates set by rating organizations.)