external debt management in korea

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External Debt External Debt Management in Korea Management in Korea Junggun Oh Junggun Oh [email protected] [email protected]

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External Debt External Debt Management in KoreaManagement in Korea

Junggun OhJunggun Oh

[email protected]@bok.or.kr

ContentsContents

Lesson from the CrisisLesson from the Crisis External Debt Management OrganizationExternal Debt Management Organization FX Transaction Information NetworkFX Transaction Information Network Disclosure of ED StatisticsDisclosure of ED Statistics Early Warning SystemEarly Warning System Management of Financial Institutions’ Management of Financial Institutions’

FX SoundnessFX Soundness Analysis and CountermeasuresAnalysis and Countermeasures

Lesson from the CrisisLesson from the Crisis

In spite of sound long-term solvency, short-In spite of sound long-term solvency, short-term illiquidity may cause crisisterm illiquidity may cause crisis

• Short-term external debt (ED) management is Short-term external debt (ED) management is important in Koreaimportant in Korea

Long-term ED management indicator: Total ED / GDPLong-term ED management indicator: Total ED / GDP

Short-term ED management indicator: Short-term ED / Short-term ED management indicator: Short-term ED / Long-term ED, Short-term ED / Reserves Long-term ED, Short-term ED / Reserves

External Debt in KoreaExternal Debt in Korea

0

50

100

150

200

250

300

350

1995 1 1996 1 1997 1 1998 1 1999 1 2000 1 2001 1 2002 1 2003 1

0

10

20

30

40

50

60

SED/Reserve((le

Total Debt/GDP(right

SED/Total Debt(right

External Debt Management External Debt Management OrganizationOrganization

BOK MOFE FSS

Information Network

Statistics

Analysis and Countermeasure

Overall Planning and

Management

Supervision on FX Soundness

KCIF

EWS

BOK: Bank of Korea, MOFE: Ministry of Finance and Economy, FSS: Financial Supervision Service, KCIF: Korea Center for International Finance

FX Transaction Information FX Transaction Information NetworkNetwork

Introduced in 1999Introduced in 1999

Linked with about 2300 almost all Linked with about 2300 almost all financial institutionsfinancial institutions

Monitoring every FX transactions by Monitoring every FX transactions by transaction, by institution, by persontransaction, by institution, by person

Providing information to BOK, MOFE, Providing information to BOK, MOFE, FSS, KCIF, KDIC, FIU etc.FSS, KCIF, KDIC, FIU etc.

Disclosure of ED StatisticsDisclosure of ED Statistics

Periodic disclosure of ED statistics for Periodic disclosure of ED statistics for enhancing their transparencyenhancing their transparency

• Disclosure of ED statistics every quarterDisclosure of ED statistics every quarter By institution, by long & short-termBy institution, by long & short-term

• Disclosure of FX reserves twice a monthDisclosure of FX reserves twice a month

Early Warning SystemEarly Warning System

Every month since April 1999Every month since April 1999

Two methodsTwo methods

• Probit modelProbit model

• Signaling approachSignaling approach

Management of Financial Management of Financial Institutions’ FX Soundness Institutions’ FX Soundness

FX liquidity ratioFX liquidity ratio

FX asset liability maturity mismatch ratioFX asset liability maturity mismatch ratio

Medium & long-term FX fund raising Medium & long-term FX fund raising ratioratio

Exchange rate risk managementExchange rate risk management

FX Liquidity RatioFX Liquidity Ratio

Introduced in July 1997Introduced in July 1997

FX assets due in 3 months/FX liabilities FX assets due in 3 months/FX liabilities due in 3 monthsdue in 3 months

Guideline: 80% or more (85% or more Guideline: 80% or more (85% or more since April 1, 2004)since April 1, 2004)

109.799.897.5106.8

March 2004200320022001

Note: the end of period

FX Asset Liability Maturity FX Asset Liability Maturity Mismatch RatioMismatch Ratio

Introduced in January 1999Introduced in January 1999 (FX assets by period-FX liabilities by (FX assets by period-FX liabilities by

period)/Total FX assetsperiod)/Total FX assets Guideline: within 7 days: 0% or more, Guideline: within 7 days: 0% or more,

within 1 month: -10% or morewithin 1 month: -10% or more

within 1 month

within 7 days

2.61.30.45.1

2.65.03.25.9

March 2004

200320022001

Note: the end of period

Medium & Long-term Medium & Long-term FX Fund Raising RatioFX Fund Raising Ratio

Introduced in January 1999Introduced in January 1999

Outstanding of raised FX funds of maturity of 1 year Outstanding of raised FX funds of maturity of 1 year or more / Outstanding of FX loans of maturity of 1 or more / Outstanding of FX loans of maturity of 1 year or more year or more

Guideline: 50% or more (80% or more since April 1, Guideline: 50% or more (80% or more since April 1, 2004)2004)

136.2126.5117.7119.6

March 2004200320022001

Note: the end of period

Exchange Rate Risk ManagementExchange Rate Risk Management

FX position managementFX position management

Corporations’ exchange rate risk Corporations’ exchange rate risk management schememanagement scheme

FX Position ManagementFX Position Management

Overall position must be less than 20% of the Overall position must be less than 20% of the amount of capital at the end of a previous amount of capital at the end of a previous monthmonth

• Overall position = spot position + forward positionOverall position = spot position + forward position

Overall positions of all foreign exchange Overall positions of all foreign exchange banks must be reported to BOK everyday banks must be reported to BOK everyday through FX Transaction Information Networkthrough FX Transaction Information Network

Corporations’ Exchange Rate Corporations’ Exchange Rate Risk Management SchemeRisk Management Scheme

Introduced in April 2001Introduced in April 2001

Bank: assess corporations’ exchange rate risk Bank: assess corporations’ exchange rate risk management situations in loan screeningmanagement situations in loan screening

FSS: assess banks’ management based on FSS: assess banks’ management based on CAMELS including banks’ assessment on CAMELS including banks’ assessment on corporations’ exchange rate risk management corporations’ exchange rate risk management

FSS BanksCorporations

Exchange RateRisk

Management

CAMELSLoan

Screening

Analysis and CountermeasureAnalysis and Countermeasure

Compilation of statistics and forecasting Compilation of statistics and forecasting on monthly FX supply and demandon monthly FX supply and demand

Monitoring short-term ED and Monitoring short-term ED and introducing appropriate countermeasuresintroducing appropriate countermeasures

• Changes in FX liquidity ratio, Medium & Changes in FX liquidity ratio, Medium & long-term FX fund raising ratio etc.long-term FX fund raising ratio etc.