Credit Guarantee SystemCredit Guarantee System

Korea Credit Guarantee FundKorea Credit Guarantee Fund

Chanki ParkChanki Park

Chief, International Affairs TeamChief, International Affairs Team

Chapter 1

Overview of Credit Guarantee System

Type of C.G Related Liability

Guarantee forBank Loans

Bank Loans, Overdraft accountDiscount on Commercial BillsIndirect

Financing Payment GuaranteeGuarantee for Payment

Guarantees of Banks

.

Direct Financing

Guarantee forBond Issuance Corporate Bond (P-CBO)

Guarantee forCommercial Bills

Guarantee for Transaction LiabilitiesCredit

Between Enterprises

Notes Payable, Mortgage Bills,Notes Receivable

Transaction Liabilities

Others Guarantee for Performance, Guarantee for Tax Payment

Type of Credit Guarantee ProgramType of Credit Guarantee Program

② Credit Investigation

① Apply forCredit Guarantee

③ Issue Credit Guarantee

④ Supply goods

EnterprisesEnterprises K C G F

Guarantee for Bank Loans

Basic FrameworkBasic Framework

Guarantee for Transaction Liabilities

K C G F

BuyerBuyer SupplierSupplier

BanksBanks

① Apply forCredit Guarantee

② Credit Investigation

③ Issue Credit Guarantee

⑤ Pay for each transaction

④ Loans

Guarantee OutstandingGuarantee Outstanding

Type US $ billion Proportion

Bank Loans 25.5 89.3%

Transaction Liabilities 2.4 8.3%

Performance 0.4 1.5%

Others 0.3 0.9%

Total 28.5 100.0%

As of June 2007

• By Type of Guarantee

Change in Guarantee CompositionChange in Guarantee Composition

75%

80%

85%

90%

95%

100%

2001 2002 2003 2004 2005 2006

Bank Non-Bank Transaction Lia Performance Others

Guarantee OutstandingGuarantee Outstanding

• By Industry

Wholesale & Retail

38.5%Manufacture 38.4%

Construction 11.7%

Others 11.4%

As of June 2007

Operating Cost

87.3%

Capital Investment

11.2%

Others1.5%

• By Use

• By Size : SMEs takes 99.9%

Guarantee by RatingGuarantee by Rating

AAA ~ BBB-11%BB+~B-

63%

CCC+8%

Below CCC18%

As of Dec 2006

Growth in Guarantee OutstandingGrowth in Guarantee Outstanding

1990 1995 2000 2005

Capital Fund 0.6 0.5 2.9 3.2 G'tee Outstanding 5.2 8.2 22.6 31.1

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

bil

lio

n $

Leverage Ratio 8.4 15.5 7.8 9.8

Our Guarantee in EconomyOur Guarantee in Economy

Proportion of guarantee outstanding

YearYear 19971997 20062006 20102010

GDP 3.5% 4.8% 3.5%

Total Loan for SMEs 18.5% 15.0% 10.8%

Yr 2001

Yr 2002

Yr 2003

Yr 2004

Yr 2005

Total SME Loan 14,499 18,470 23,768 24,366 25,649

Kodit's Guarantee 3,127 3,251 3,273 3,357 3,110

Proportion 21.6% 17.6% 13.8% 13.8% 12.1%

0.0%5.0%10.0%15.0%20.0%25.0%

-5,000

10,000 15,000 20,000 25,000 30,000

$m

illio

n

Guarantee Proportion to SME Loans

-

50,000

100,000

150,000

200,000

250,000

300,000

2002 2003 2004 2005 2006

Below 50 Below 100 Below 300

Below 500 Below 1000 Above 1000

Guarantee Outstanding by AmountGuarantee Outstanding by Amount

$ thousand

By Number of Customers

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2002 2003 2004 2005 2006

Below 50 Below 100 Below 300

Below 500 Below 1000 Above 1000$ thousand

By Proportion by Amount ($billion)

Risk ManagementRisk Management

Default and Payment under Guarantee

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2003 2004 2005 2006 2007.09

Default Rate Rate of Payment Under Guarantee

Chapter 2

Credit Guarantee Procedure

Consultation Application Credit

Investigation Credit

Evaluation

IssueGuaranteeCertificate

5th Step

EligibilityEligibilityCeilingCeiling

Pre-Pre-investigationinvestigation

EligibilityEligibilityCeilingCeiling

Pre-Pre-investigationinvestigation

Site VisitSite VisitSite VisitSite VisitCCRSCCRSSBSSSBSSSESSSESS

CCRSCCRSSBSSSBSSSESSSESS

DocumentDocumentReviewReview

DocumentDocumentReviewReview

• EligibilityEligibility• Ceiling, etcCeiling, etc• EligibilityEligibility• Ceiling, etcCeiling, etc

• Site VisitSite Visit• Site VisitSite Visit• ChecklistChecklist• RatingRating• ChecklistChecklist• RatingRating

• ContractContract• FeeFee• ContractContract• FeeFee

• DocumentDocument ReviewReview• Bank to loanBank to loan

• DocumentDocument ReviewReview• Bank to loanBank to loan

General Guarantee ProcedureGeneral Guarantee Procedure

4th Step3rd Step2nd Step1st Step

• Visit KODIT branch office• Bring basic document (F/S, B/C, C/R)

• Visit KODIT branch office• Bring basic document (F/S, B/C, C/R)

• Inquire basic financial data and credit report through intranet [basic eligibility]

• Inquire basic financial data and credit report through intranet [basic eligibility]

• About company in general and CEO• Financial status and prospect of business

• About company in general and CEO• Financial status and prospect of business

• Type of guarantee and rough amount• Document preparation & visiting appointment

• Type of guarantee and rough amount• Document preparation & visiting appointment

ConsultationConsultation

Financial managerCEO, Owner, etc.

Financial managerCEO, Owner, etc.

Team managerBranch officer

Team managerBranch officer

ConsultationConsultation

Initial Decision-making

Initial Decision-making

CompanyCompany

KODITKODIT

CompanyKODIT

CompanyKODIT

KODITKODIT

Almost all business entities are eligible for credit guarantees

Ineligible Company

- Not in operation

- Overdue in payments of bank loans

- Submitting false document, etc

Enterprises

Ineligible Industry :

- Financial services, gambling, certain luxurious restaurants, etc.

Eligibility for Credit GuaranteeEligibility for Credit Guarantee

Where to IssueWhere to Issue What to CheckWhat to Check

• City Hall, Branch offices (On-line)

• CPA or Tax Accountant

• Tax agency

Residential Record

Certificate

Financial Statement

Tax Payment Records

• Frequent change in address

• Family lives together

• Capital structure, profitability

• Overdue tax, tax payment records

• Officially reported sales

DocumentDocument

• Banks &Financial institution

Financial Transaction

Records

• Bank Transaction status• Overdue loans or interest

Document RequiredDocument Required

Where to IssueWhere to Issue What to CheckWhat to Check

• Registration office

• Company prepares

Real Estate Registration

Record

Company Report

• Foreclosure records

• Value as collateral

• Detailed information about business

DocumentDocument

• Tax agency

• Registration office

Corporation Registration

Certificate

• Actual and lawful right to run the business

• Management organized

Document RequiredDocument Required

Application Accepted

-Check missing document-Check basic eligibility-Check debtor

• Application Process

• Document Review and Pre-investigation

Application and Pre-investigationApplication and Pre-investigation

Pre-

investigation

Pre-

investigation

Preview documents customer submitted

Preview documents customer submitted

Collect external data and reputation, etc

Collect external data and reputation, etc

Preview internal information and previous report

Preview internal information and previous report

On-site InvestigationOn-site Investigation

What and How to CheckWhat and How to Check

• Fraudulent sales and registration document

• Fraudulent factory or office

• Hidden owner with delinquent or bad credit

• Document for sales, order, tax payment, suppliers and buyers, etc.

• Factory, facilities, product, employee, etc.

• Bank account, cashbook, transaction record

• Management of A/R, A/P

Other Checkup

Operation and Prospect of Business

Budget and finance management

CriteriaCriteria

• Devotion for the business, personality,

• Experience, know-how and capability

Interview

CEO or Owner

CategoryCategory Constituent Constituent

Overview,Management

Overview,Management

Main office,Production,Operation

Main office,Production,Operation

MonetaryTransactionMonetary

Transaction

Financial StatementFinancial Statement

Opinion,Rating

Opinion,Rating

Outline, history, subsidiaryOutline, history, subsidiary CEO, Management, Shareholders CEO, Management, Shareholders

Factory, facilities, Product and qualityFactory, facilities, Product and quality

Suppliers and buyersOrder, Sales trendSuppliers and buyersOrder, Sales trend

List of Debt, CollateralOverdue history and list, default history List of Debt, CollateralOverdue history and list, default history

Balance Sheet, Income Statement, Schedules of cost of goods manufactured, Financial ratio analysis, etc.Balance Sheet, Income Statement, Schedules of cost of goods manufactured, Financial ratio analysis, etc.

Rating resultRating result Opinion of investigatorsOpinion of investigators

Framework of Investigation ReportFramework of Investigation Report

Guarantee Amount DeterminationGuarantee Amount Determination

Up to US $3 million Up to US $7 million including special guarantee programs

Up to US $3 million Up to US $7 million including special guarantee programs

Ceiling (For each company)

Company RequestCompany Request

Amount neededAmount needed

SalesSales

Sales x 25%~ Sales x 50%Sales x 25%~ Sales x 50%

EquityEquity

Sales x 25%~ Sales x 50%Sales x 25%~ Sales x 50%

Shareholder’s equity x 3

Shareholder’s equity x 3

How much we guarantee?

Credit EvaluationCredit Evaluation

What and How to CheckWhat and How to Check

• Propriety of loan and guarantee

• Analyze firm and default probability etc.

• Common Checklist (Violation or not)

• Rating, Cash-flow, Firm Value

• What kind of terms bank want?

Evaluation opinion

Credit Checklist

Terms of Loans

CriteriaCriteria

• Ceiling

• Limit by Rating, Sales, EquityLimit Check

Approval Approval

Common Approval Process

AssistantAssistant

On-site investigationEvaluation Report(Rating)

On-site investigationEvaluation Report(Rating)

Team ManagerTeam Manager Branch ManagerBranch Manager

Shareholder’s equity x 3Shareholder’s equity x 3Regulation and

Error check-upRegulation and Error check-up Final decision-makingFinal decision-making

Approve or Reject

Special Level of Decision-making

Headquarter Approval

- Low rating score- Amount higher than branch limit- Without guarantor required

CEOGuarantor

CEOGuarantor

ManagementGuarantor

ManagementGuarantor

CompanyCompany

Concluding guarantee contract

KODITKODIT Contract

Guarantee Certificate

Contract & IssuanceContract & Issuance

Guarantee ContractPaying of guarantee feeGuarantee ContractPaying of guarantee fee Guarantee CertificateGuarantee Certificate LoanLoan

Fee and Coverage RatioFee and Coverage Ratio

Guarantee Fee Ratio

0.7% ~ 2.5%

Rating

0.1%~0.4%

Add

0.1%~0.3%

Subtract

0.5% ~ 3.0%

Determination

Basis rateLong-term user

Excessive user

Innovative Co

Low risk gu’tee

Bottom : 0.5%

Ceiling : 3.0%

Coverage Ratio

Share risk with banks, but too complex

Standard coverage ratio 50% ~ 90% (at their rating) Average coverage ratio : 83% (2007)

Thank you !!Thank you !!

Korea Credit Guarantee Fund

International Affairs Team

Tel : (82) 2 710 4321