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The Services of Korea Credit Guarantee Fund
The Services of Korea Credit Guarantee Fund
Park, Yong-pyungChin, Yong-juKorea Credit Guarantee Fund
Korea Credit Guarantee FundKorea Credit Guarantee Fund2
Table of Contents
I. SMEs in the Korean EconomyII. Overview of KCGF III. Credit Guarantee ServicesIV. Effects of Credit Guarantee
on the National Economy V. Plans for Further Development of the SystemVI. Conclusion
Korea Credit Guarantee FundKorea Credit Guarantee Fund3
I. SMEs in the Korean Economy
Importance of SMEs
Challenges in SME financing
Credit guarantee system in Korea
Korea Credit Guarantee FundKorea Credit Guarantee Fund4
Importance of SMEs
Number of Companies
SMEs 99.8% LEs 0.2%
Number of Employees
SMEs 87% LEs 13%
SMEs 42% LEs 58%
Total Exports Total Production
SMEs 51% LEs 49%
Korea Credit Guarantee FundKorea Credit Guarantee Fund5
Credit quality gap
Insufficient collateral to get formal financing
Higher cost of transaction and information
collection
Low credit assessment ability of financial
institutions
Limited access to formal financing
Challenges in SME Financing
Korea Credit Guarantee FundKorea Credit Guarantee Fund6
Reguarantee
Credit Investigation
Credit Guarantee System in Korea
Creditor
Municipality
KFCGF
Government
ApplicationCredit
Guarantee
Contribution
Contribution
Contribution
Loan
Debtor
ContributionSupervision
Financial
InstitutionsSME
Guarantor
KCGF
KOTECLocal CGFs
Contribution
Korea Credit Guarantee FundKorea Credit Guarantee Fund7
II. Overview of KCGF
KCGF in brief
Source of funding
Leverage ratio
Organization
Supervising authorities
Services
Korea Credit Guarantee FundKorea Credit Guarantee Fund8
KCGF in brief
Public institution providing comprehensive support to SMEs
Established in 1976 by the KCGF Act
Capital fund of USD 3 billion
Outstanding credit guarantee over USD 32.1 billion (2004)
84 branch offices and 2,200 employees
Korea Credit Guarantee FundKorea Credit Guarantee Fund9
Contribution fromGovernment Contribution fromfinancial institutions Guarantee fee, etc.
Contribution from Government: Subject to yearly budget
Contribution from Financial Institutions: 0.2% of designated type of loans
Guarantee fee, Interest, etc.
Source of funding
Korea Credit Guarantee FundKorea Credit Guarantee Fund10
Leverage Ratio
The total amount of credit guarantees that KCGF can provide as stipulated by the KCGF Act : 20 times the total amount of the capital funds
The leverage ratio as of the end of 2004 : 10.5
10.59.7
7.89.0
9.3
6
8
10
12
2000 2001 2002 2003 2004
Leverage ratio =Outstanding credit guarantee
Capital fund
Korea Credit Guarantee FundKorea Credit Guarantee Fund11
Organization
10 Debt Collection Departments
Board of Executive Directors
Chairman & President
Executive Vice President
Executive Directors (5)
Board of Policy
Auditor
Auditing & Examination Office
Head Office
7 Debt Collection Teams
4 Business group
84 Branches10 Rep. Offices
6 Regional HQs
2 Debt Collection HQs
Korea Credit Guarantee FundKorea Credit Guarantee Fund12
Supervising Authorities
The Board of Audit and Inspection
The National Assembly
ContributionBudget
AllocationMinistry of Finance
and Economy
Small and Medium Business Administration
Ministry of Planning and Budget
Audit
KCGFSupervision
Budget request
Inspection
Korea Credit Guarantee FundKorea Credit Guarantee Fund13
Services
Credit Guarantee Services
Credit Insurance Services
Infrastructure Credit Guarantee Services
Management Consulting Service
Comprehensive Support System for SMEs
Korea Credit Guarantee FundKorea Credit Guarantee Fund14
III. Credit Guarantee Services
FrameworkTypes of credit guarantee Operating procedures EligibilityConsultation & Application Credit investigationCredit evaluation
Issuing letter of credit guaranteeCoverage ratioCredit Guarantee FeeGuarantee ceiling Collateral & guarantorPerformance
Korea Credit Guarantee FundKorea Credit Guarantee Fund15
Framework
Credit guarantee for the repayment of loans extended to the enterprise or transaction liabilities assumed by the enterprise
Loan
Credit Investigation
Issue Credit Guarantee
Contribution Supervision
Contribution
Apply for Credit Guarantee
KCGF
Government
Financial Institution
Enterprise
Korea Credit Guarantee FundKorea Credit Guarantee Fund16
Types of Credit Guarantee Services
National tax Tax and duty Tax payTransaction liabilitiesTransaction liabilitiesDeposit for bids Performance Notes payables, etc. Commercial bills Credit
Transact-ions
Corporate bondsCorporate bondsDirect Secured loans Secured loans Bills of exchange Acceptance of trade bills LeasesLeases
Loans, commercial bill discounts, etc.
Loans from non-banking financial institutions
Payment guaranteesPayment guarantee of banks Loans, overdraft, etc. Bank loans Indirect
Financing
Related Liabilities Type
Korea Credit Guarantee FundKorea Credit Guarantee Fund17
Types of Credit Guarantee Services
Guarantees for a pool of corporate bonds / loans Combining mechanisms of ABS and credit guaranteeFacilitated corporate financing in a short period of time
Special Credit Guarantee : P-CBO / CLO Guarantee
KCGF
Subordinated CBOs
Credit line
Bonds
Proceeds
Bonds Senior CBOs
Credit guarantee
Enterprise
Bank
Investor SPCOriginatorProceeds Proceeds
Korea Credit Guarantee FundKorea Credit Guarantee Fund18
Preview Application
2nd Step
Credit Investigation
3rd Step
Credit Evaluation
4th Step
1st Step
Approval & Issuance of
Letter of Credit Guarantee
5th Step
Operating Procedure
Korea Credit Guarantee FundKorea Credit Guarantee Fund19
Eligibility
General Principle
Any individual or legal persons who operate business for profit are eligible for credit guarantee services.
Though large enterprises (LEs) may apply for credit guarantee services, SMEs receive more favorable treatment.
Korea Credit Guarantee FundKorea Credit Guarantee Fund20
Eligibility
Eligible Industry Sector
Positive List System
Negative ListSystem
No Restriction
1976 1995 1998 2005
Korea Credit Guarantee FundKorea Credit Guarantee Fund21
Consultation & Application
Direct Application
Loan Application
Guarantee Application
Loan Application
Guarantee Agreement
Indirect Application
Financial Institution Enterprise KCGF
Financial InstitutionKCGFEnterprise
Korea Credit Guarantee FundKorea Credit Guarantee Fund22
ApplicationRequired Documents
Enterprise-related documents - Business registration certificate - Corporation registration certificate - Business plan - Financial statements, etc.
Financial transaction-related documents - Transaction statements from banks - Tax payment certificate, etc.
Representative-related documents - Resident registration certificate - Real estate registration certificate, etc.
Korea Credit Guarantee FundKorea Credit Guarantee Fund23
Credit Investigation
On-site Investigation
Financial StatusFinancial Status
FacilityFacility PersonnelPersonnel
Product demand Technology
Raw-material supply External factors Prospects ofIndustry
Internal factors
Preliminary Document ReviewAnalyze submitted documentsUnderstand company’s status and operationCheck forged documents
Korea Credit Guarantee FundKorea Credit Guarantee Fund24
Credit Evaluation
KRW 50 Million
KRW 300 Million
Speedy Method
Simplified Method
Standard Method
Standard Criteria Over KRW 300 mil. Comprehensive Method
Simplified CriteriaKRW 50 mil. ~ 300 mil.Standard Method
Small sum check list KRW 50 mil. or less Simplified Method
Evaluation ItemGuarantee Amount
Korea Credit Guarantee FundKorea Credit Guarantee Fund25
Issuing Letter of Credit Guarantee
Electronic credit guarantee certificate
Encrypt
Letter of credit guarantee Letter of credit guarantee
Issue Submit
Transmit
KCGF Enterprise Financial Institution
KCGFFinancial InstitutionEncrypt Transmit
Korea Credit Guarantee FundKorea Credit Guarantee Fund26
Coverage Ratio
70% ~ 85% depending on the type of guaranteed liability, financial institution (creditor institution) and credit rating of the borrower.For reference, 70% is the most widely used coverage ratio around the world. Below 50% was adopted in a few countries but failed.
85%All other liabilitiesRoll-Over
IssuedNewly 80%Discount of Commercial Bills
70~85%80%Trade Financing
90%90%
Other Lending Institutions
Contributing Banks
Types of Guaranteed Liabilities
Korea Credit Guarantee FundKorea Credit Guarantee Fund27
Credit Guarantee Fee
0.5 ~2.0% per annum depending on the credit rating of the enterprise - Additional 0.5% for large enterprises - Fixed fee applies to certain types of guarantees
DCCCCCC-CCC+ ~CCCB-Credit rating
1.11.00.90.80.60.5Fee rate
2.0
BB-~B+
2.01.51.41.31.2Fee rate
BAAA AA~A- BBB+ ~BBB- BB+ ~BBCredit rating
(For SMEs)
Korea Credit Guarantee FundKorea Credit Guarantee Fund28
Guarantee CeilingNormal ceiling on aggregated credit guarantee amount for a single company : KRW 3 billion (USD3 mil.)
Maximum aggregated credit guarantee amount for a single company, when designated credit guarantees are extended, which are deemed essential for the national economy
: KRW 10 billion (USD10 mil.)
Normal KRW 3 billion
SpecialKRW 10 billion
Korea Credit Guarantee FundKorea Credit Guarantee Fund29
Collateral & Guarantor
Collateral: KCGF does not acquire any collateral when extending credit guarantee. The cases when KCGF take collateral are extremely limited.
Guarantor: KCGF limits personal guarantors to those closely related to the company and have a keen interest in it. KCGF tries to minimize the number of guarantors.
Korea Credit Guarantee FundKorea Credit Guarantee Fund30
Performance
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1999 2000 2001 2002 2003 20040
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Outstanding guaranteeGuarantee provided
In million USD
Korea Credit Guarantee FundKorea Credit Guarantee Fund31
V. Effects of Credit Guarantee on the National Economy
Production inducement & added value inducement
effect
Tax revenue inducement & job creation effect
GDP & credit guarantee growth rate
The most effective government policy tool for SMEs
Improving SMEs attitude toward credit
Korea Credit Guarantee FundKorea Credit Guarantee Fund32
Production Inducement & Added Value Inducement Effect
1,478 1,4301,630
1,924
765 704832
963
0
500
1,000
1,500
2,000
2,500
2001 2002 2003 2004
in million USD
Production Inducement Added Value Inducement
Korea Credit Guarantee FundKorea Credit Guarantee Fund33
Tax Revenue Inducement & Job Creation Effect
215
170160
202
95,392
83,005 80,824
89,936
50
100
150
200
250
2001 2002 2003 2004
in million USD
60,000
65,000
70,000
75,000
80,000
85,000
90,000
95,000
100,000persons
Tax Revenue Inducement Job Creation
Korea Credit Guarantee FundKorea Credit Guarantee Fund34
GDP & Credit Guarantee Growth Rate
-20
0
20
40
60
80
100
1996 1997 1998 1999 2000 2001 2002 2003 2004
Korea Credit Guarantee FundKorea Credit Guarantee Fund35
Survey conducted by KIET and KCGF
Evaluated on a 5 point scale
3.181.772.83Information Assistance2.961.80 2.82Consulting
3.222.90 2.93Tax Reduction & Exemption
3.744.113.04Government’s Loan4.084.493.33Credit Guarantee 200019981992Policies
The Most Effective Government Policy Tool for SMEsc
Korea Credit Guarantee FundKorea Credit Guarantee Fund36
Positive effect on management
Improved understanding on credit
Enhancing transparency in management
Recognizing the importance of credit
Agree 90%
Agree 95%
Agree 86% Cut illegal tax reports
Improving SME’s Attitude toward Credit
Korea Credit Guarantee FundKorea Credit Guarantee Fund37
Ⅵ. Plans for Further Development of the System
• A Different View on Guarantee• Adverse Effects of Credit Guarantee• Action Plans for Renovation of the
Credit Guarantee System
Korea Credit Guarantee FundKorea Credit Guarantee Fund38
A Different View on Credit Guarantee
“The evolution of the government's ratings will be determined by developments in the DPRK and by the success of the government in reducing distortions in its own economy arising from labor inflexibility as well as government activity in allocating credit and guarantees.”
Takahira Ogawa, Director, Standard & Poors
Korea Credit Guarantee FundKorea Credit Guarantee Fund39
Adverse Effects of Credit Guarantee
• Excessive GuaranteeProvision
Impeding Development of Financial Industry
• Guarantee forMarginal Companies
Impeding Restructuring of SMEs
• Increase in Losses on Guarantee Operations
Increasing Burdens on Government Budget
Korea Credit Guarantee FundKorea Credit Guarantee Fund40
Action Plans for Renovation of Credit Guarantee
1. Promote effectiveness of guarantee
2. Enhancing the roles of Private Financial Institutions
3. Proper Allocation of burdens of Credit Guarantee
□ Adoption of Market-friendly CreditGuarantee
Korea Credit Guarantee FundKorea Credit Guarantee Fund41
2004 2005 2006 2007 2008 2009
3031
29
27
28
26
Reduction in Credit Guarantee Provision
□ Target Annual Reduction of Guarantee
à 1, 000 billions KRW (U$ 1 billion)
Guarantee outstanding(in billion U$)
Korea Credit Guarantee FundKorea Credit Guarantee Fund42
※ Plans for Increasing Portion of Innovative SMEs
10.0%7.2%5.8%3.5%1.3%Innovative Start-ups
50.0%46.0%42.0%38.0%34.0%Innovative SMEs
20092008200720062005Year
Selective and Focused Support
□ Efficient Utilization of Guarantee Resources
Large-amount Users
Long-term Users
Discourage from using GuaranteesPenalty
Korea Credit Guarantee FundKorea Credit Guarantee Fund43
Decrease AverageCoverage Ratio 85%
2005 2007
80%
Expand CoverageRatio Differentiation 70%-100% 50%-100%
Enhancing the Roles of Private Financial Institutions
□ Decrease Average Coverage Ratio
□ Expand Coverage Ratio Spread
Korea Credit Guarantee FundKorea Credit Guarantee Fund44
50%30%20%Present
30%40%30%After Renovation
SMEs Financial Institutions Government
Allocating the Burdens of Guarantee Operations among Beneficiaries
Korea Credit Guarantee FundKorea Credit Guarantee Fund45
2007200620052004Year
1.51%1.23%1.12%1.07%Guarantee Fee Ratio(Average)
※ Average Guarantee Fees Increase
□ Plans for Increasing Average Guarantee Fees
Allocating the Burdens of Guarantee Operations among Beneficiaries
Korea Credit Guarantee FundKorea Credit Guarantee Fund46
Raising Financial Institutions’ Contribution
Allocating the Burdens of Guarantee Operations among Beneficiaries
0.3% 0.4%
2005 2006
Korea Credit Guarantee FundKorea Credit Guarantee Fund47
Ⅶ. Conclusion
“When I ask you to take an aspirin,
Please don’t take the whole bottle.”
Havey PenickLittle Red Book, 1992
A Lesson from A Golf Teacher
48
Thank youKorea Credit Guarantee Fund
Tel : +822 710 4114
Website : www.kcgf.co.kr
E-mail : [email protected]