IR

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KDBs Function and Role Mr. Park Ki Soon
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Contents

• Briefs of Koreas Policy Financial Institutions
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• KDB at a Glance 3
• Transition in KDBs Role ..7
• Future Role and Vision ...19

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I. Briefs of Koreas Policy Financial
Institutions
As of April, 2006
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II. KDB at a Glance

• 1. Foundation

• 2. Relations with Government Entities

• 3. Market Leader in Korea

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1. Foundation 100 Government Owned Policy Bank

• Founded in 1954 in accordance with the KDB Act
• Primary implementation arm of economic policy for
  the Korean government, responsible for supplying
  major industrial capital to help develop Korean
  industries and the national economy
• Increasing importance of public policy and
  strategic roles owing to continuing need for
  reform

Policy Implementation Arm

• 100 Government owned, no plans for privatization
• Largest policy bank in Korea
• KDBs governor appointed by the President of the
  Republic of Korea
• Credit ratings of A/A3/A (SP/Moodys/Fitch)
  identical with the sovereign

Government Control

• Government is responsible for maintaining KDBs
  solvency as stipulated in KDB Act Article 44
• Capital injections totaling KRW 10.4 trillion
  since 1998
• Direct access to Bank of Korea funds

Government Support
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2. Relations with Government Entities

• Approval of annual business plan by MoFE
• Supervision by the National Assembly, BAI, and
  FSC

Annual Inspection of Business Operation
? Capital Increase ? Nomination of Exes ? Budget
Approval ? Biz Plan Approval
MoFE
Natl Assembly
KDB
BAI FSC
BAI Audit of Accounting FSS Financial
Supervision
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3. Market Leader in Korea
26 share of total equipment capital
Largest provider of industrial capital
29 share of total bonds issued
Most active financial bond issuer
No.1 in Asia-Pacific PF arrangement
Foremost project finance arranger
58 of venture investment by banks
Leader in venture investment
22 of the corporate bond market
Top corporate bond underwriter
Credit Ratings A (SP), A3 (Moody's ), A (Fitch)
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III. Transition in KDBs Role

• 1. Foundation 97 Economic Crisis

• 2. Economic Crisis Present

• 3. Leading Role in Corporate Restructuring

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1. Foundation 97 Economic Crisis (1)
KDB has actively supported the governments
industrial policy to facilitate economic
development and growth.
1950s
1990s
1960s70s
1980s
Public (Infra) Financing
Development Financing
Long-term Ind. Financing
Comprehensive Corp Financing
To basic industries incl. electricity, coal
To export industries incl. heavy-chemical
To growth industries incl. auto, electronic
To high-tech industries incl. semi-conductors
? Self-financing ratio
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1. Foundation 97 Economic Crisis (2)
1950s Public (Infra) Financing

• Support for reconstruction of industrial
  facilities and infrastructure industries to build
  a self-sustaining economy such as Electricity,
  fertilizer, cement and coal
• Accounted for 84 of total facility loans
  extended by banks (as of 1955)
• Heavy reliance on public funds including
  government borrowings

1960s70s Development Financing

• In line with the governments economic
  development plans, KDB provided financial support
  to key industries such as energy, ship-building,
  steel and heavy chemicals
• Self-financing ratio was raised to 40 through
  active issuance of IFBs
• Reinforced the development financing role by
  actively pursuing overseas funding, equity
  underwriting, and guaranty services for corporate
  bond issues

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1. Foundation 97 Economic Crisis (3)
1980s Long-term Industrial Financing

• Built foundation for stable growth by supporting
  industry rationalization in areas such as
  shipbuilding, electronics, auto, and heavy
  chemicals
• Sought to identify and foster promising small and
  medium-sized companies, thereby supporting
  balanced industrial development
• Self-financing ratio surged to 83 by 1985
• Actively participated in new international
  businesses

1990s Economic Crisis Comprehensive Corp
Banking

• Upgraded industrial structure by fostering
  high-tech industries such as semiconductors
• Strengthened corporate competitiveness by
  actively participating in off-shore financing,
  financial arrangement and derivatives
• Sourced its funds through financial market
  activities such as expanding IFB issues,
  deposits, and overseas funding

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2. Economic Crisis Present (1)
After the Asian financial crisis, KDB helped
restore and stabilize the national economy by
serving as a representative debtor for overseas
funding, implementing various measures to ease
financial market uncertainty and taking a lead
role in the corporate restructuring process.
196080s
After 1990s
Period of Government driven economic growth
Market-oriented economy
Market-based financing
Instructive policy financing
Limited funds provided to support specific
industries under special terms
Support market efficiency and development
of financial industry
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2. Economic Crisis Present (2)
1. Expand supply of industrial funds

• Supplied W125 trillion to ease tight credit
  conditions and promote next generation growth
  industries since 1997
• Expand long-term facility loans to stimulate
  economy
• Strengthen investment banking in response to
  rising demand for direct corporate financing

2. Meet various corporate financing needs

• Diversification of financial services through
  underwriting, trade financing, financial
  arrangement and guaranty services such as
  Underwriting, Corporate Overseas Borrowing and
  Trade financing

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2. Economic Crisis Present (3)
3. Strong support for SMEs and Ventures

• Expand financial support for SMEs and ventures
  with growth potential
• Activate venture capital investment in support of
  economic policy

4. Representative overseas borrower

• Raised 23.4 billion mid and long-term overseas
  funds to support economic recovery and meet the
  foreign currency demands from the corporate
  sector since 1997
• Reduced financing costs through currency
  diversification
• ? 405bp (1998) ? 81bp (2001) ?65bp (2003) ?
  53bp (2004) ? 25bp (2005)

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2. Economic Crisis Present (4)
5. Initiation of SOC expansion through PF

• Expand SOC investments using private capital,
  after introduction of project finance business in
  1995 ? Ranked No.1 in PF arrangement in
  Asia-Pacific (Ranked No.6 globally) (Y2004)

6. Successful corporate restructuring

• Remarkable success in corporate restructuring
  based on its long history in corporate banking
• Involved in the restructuring of major
  corporations incl. Kia and Daewoo Motors, and
  Daewoo Shipbuilding

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3. Leading Role in Corporate Restructuring (1)
During the economic crisis, the Bank has brought
stability through its financial support and
services, particularly corporate restructuring.
Supporting economic recovery by leading corporate
restructuring
Actively conformed to the government
Helping corporate restructuring systems take root
CRF, CRC, CR REITs
Conducting workouts
succeeded in 12 companies out of 15
Restructuring of Daewoo affiliates
3 major companies of Daewoo affiliates
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3. Leading Role in Corporate Restructuring (2)
Supporting economic recovery by leading corporate
restructuring

• Played a leading role in large-scale corporate
  restructuring carried out after the economic
  crisis
• Reinforced financial intermediation system and
  strengthened corporate competitiveness through
  rapid liquidation of distressed companies

Helping corporate restructuring systems take root

• Contributed to the settlement of corporate
  restructuring systems by introducing new
  institutions such as CRF, CRC and CR REITs after
  the economic crisis

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3. Leading Role in Corporate Restructuring (3)
Conducting workouts

• Through debt rescheduling such as debt-equity
  swaps, deferral of principal repayment,
  underwriting of convertible bonds, new loans
  extension and interest rate readjustment
• Led 15 companies workouts since 2000 and
  succeeded in management normalization of 12
  companies

Designed to improve financial structure to
prevent bankruptcies, workouts are
conducted under an agreement between a financial
institution and a debt company. A
financial institution arranges financial
assistance such as co-financing, debt-equity
swaps, and deferral of repayment after a debt
company carries out loss assumption activities
such as capital reduction and asset sales.
Work out
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3. Leading Role in Corporate Restructuring (4)
Restructuring of Daewoo affiliates

• Led workouts on 3 major companies (Daewoo Motor,
  Daewoo Motor Sales, Daewoo Heavy Industries) out
  of 12 Daewoo affiliates during economic crisis
  (1999. 8)
• Daewoo Heavy Industries was recorded as the
  first case of normalization under a corporate
  division scheme Separated into Daewoo
  Shipbuilding and Daewoo Heavy Industries
  Machinery (2000. 10)
• Daewoo Motor was normalized after being sold to
  General Motors although its workout had been
  suspended for nonpayment (2002. 9)
• Daewoo Motor Sales completed the workout program
  following financial structure improvement and
  business normalization (2002. 11)

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IV. Future Role and Vision

• 1. Environmental Change

• 2. Future Role

• 3. Vision

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1. Environmental Change
KDB should change its future role
Inside the Bank standing at the critical point
Outside the Bank facing severe competition

• In the near term, still expects important public
  role for the nations balanced economic
  development, economic cooperation between two
  Koreas, and establishment of Northeast financial
  hub
• At the same time, should be well prepared to
  provide advanced financial products and services,
  based on market principles

• KDB faces severe competition with entries of
  global players and restructuring of domestic
  banking industry, especially in corporate banking
  area
• Enactment of Capital Market Integration Law in
  2006 will drive a Big Bang in capital market

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2. Future Role (1)
Short-term
Long-term
Play catalytic function with commercial and
public role to supplement and vitalize the market
Elevate commercial role to Further develop its
role as a universal corporate and investment
banking institution
Provide high quality corporate banking service
Major Objectives
Perform public policy role in line with market
principles
Strengthen global competitiveness
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2. Future Role (2)
Role 1. Provide High Quality Corporate Banking
Services

• Reinforce its image as Koreas premier corporate
  banking institution, by focusing on four core
  business areas
• Strengthen competitiveness and contribute to
  domestic capital market development, taking
  advantage of strategic alliances with
  subsidiaries such as Daewoo Sec. and KDB Asset
  Management

Role 2. Perform Public Policy Role in line with
Market Principle

• Promote growth engine industries and support
  balanced economic development
• Lead development of the domestic financial market
• Support for NEA financial hub and North Korea
  development

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2. Future Role (3)
Role 3. Strengthen Global Competitiveness
Advance as a leading bank through profitability
Become a global player
Increase operating income by searching new
markets and developing new financial products and
techniques ? Eliminate governments
financial responsibility and build
foundation to advance as a leading bank
Play representative role in overseas emerging
market ? Support the relocation of the
Korean manufacturers overseas ? Localize
investment banking business including PF
and MA ? Strengthen our global presence
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3. Vision
Long-term Vision World Class Investment Bank
Vision 2011 Leading Bank in Asia
Corporate Banking
Investment Banking
International Banking
Corporate Restructuring Consulting
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Thank You