Transcript The Korean Economy: Resilient Strength, Ambitious Growth

The Korean Economy:
Resilience Amid Turbulence
October 2008
1. Macroeconomic Performance
2. Current Issues & Answers
Stable GDP Growth and Downward Trend in Inflation
Korea shows robust GDP growth
Downward trend in consumer prices
2008 CPI – Headline (%) & WTI trend (US$)
5.0%
Korea
5.3%
10
150
WTI
9
2.6%
US
2.4%
8
120
7
6
2.7%
EU
1.8%
5.5
5.6
3.9
3.6
3.9
90
5.1
4.9
5
4
5.9
4.1
60
3
2.3%
Japan
1.1%
2
30
1
0
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Average GDP Growth Rate in 2006-2007
Average GDP Growth Rate in 1H08
3
Improving Current Account Surplus
Diversified export products
Robust export growth
Exports (US$ bn, YoY Growth, %)
Semiconductor
11%
Others
26%
Chemicals
10%
400
300
200
100
162
8.0%
194
19.8%
2002
2003
254
30.9%
284
11.8%
325
14.4%
371
14.1%
330
23.0%
Textile
4%
Automobile
10%
Computer 5%
Mobile
communication
8%
0
2004
2005
2006
2007
Sep.08
Export (USD billion)
Home appliance
5%
Steel 6%
Source: Bank of Korea
Shipbuilding
7%
Machinery
8%
Diversified export markets
Current account balance would turn to surplus in 4Q 2008
2008 Current account balance (US$ bn)
Others
19.8%
China
22.1%
3.5 ~ 4.0(e)
Middle East
5.3%
-0.13
Central &
South America
6.9%
-5.21
Japan
7.1%
-8.5~-9.0(e)
1Q 08
2Q 08
3Q 08
4Q 08
EU
15.1%
ASEAN
10.4%
North
America
13.3%
Source: KITA, as of 2007
4
Much Room for Monetary and Fiscal Policy
Much room for monetary and fiscal policy
Simultaneous policy rate reduction by 7 countries
Korea policy rate trend (%)
Policy rate (October 8, 2008)
5.6
Country
5.2
Prior
Current
Change
US
2.00
1.50
△ 0.50
EU
4.25
3.75
△ 0.50
UK
5.00
4.50
△ 0.50
Sweden
4.75
4.25
△ 0.50
Swiss
2.50
2.25
△ 0.25
Canada
3.00
2.50
△ 0.50
China
7.20
6.93
△ 0.27
△0.25%
5.0%
4.8
4.4
4.0
Jan/07
Jun/07
Nov/07
Apr/08
Sep/08
Source: Bank of Korea, Datastream
5
Prudent Fiscal Position
Korea continues to produce fiscal surpluses
Lower debt level than OECD peers
Consolidated government balance (% of GDP)
4%
Government net debt to GDP (%)
3.8%
3.3%
200%
3%
180.0%
2.1%
2%
180%
1.2%
1.1%
1.0%
1%
0.7%
160%
0.4%
0.4%
2005
2006 2007 2Q08
0%
2000
2001 2002
2003
2004
Source: Ministry of Strategy and Finance
120%
Surplus well above its peers
OECD Average: 77%
100%
80%
Government surplus (% of GDP)
4
140%
2.1
66.0%
72.0%
Germany
France
62.0%
60%
2
40%
0
-0.4
-0.5
(2)
20%
-2
-2.9
0%
Korea
US
Japan
on
g
(A
A
Sl
+)
ov
en
ia
(A
Po
A
rt
)
ug
al
(A
A
Ta
-)
iw
an
(A
A
-)
Ita
ly
(A
+)
C
hi
na
(A
+)
Ic
el
an
d
(A
)
ed
ia
n
m
m
A
H
on
g
K
A
A
ed
ia
n
)
(A
or
ea
-0.4
-0.7
-2.5
(4)
K
-0.3
-1.3
33.0%
Source: S&P Sovereign Risk Indicator, July 2008, 2008 forecast data
Source: OECD; IMF (Korea data). According to OECD, Korea’s debt to GDP ratio is 26.5%
6
1. Macroeconomic Performance
2. Current Issues & Answers
Korea’s External Debt Level is Too High?
Large portion of external debt comes from currency hedging by banks and exporters
$144.7bn (34.5% of total) without default risk
External debt structure (US$ bn)
Advances for
shipbuilding exports
contracts
50.9 (12%)
Most of short-term external debt by foreign bank
Total external debt by bank (US$ bn)
No risk
Domestic bank
127.4
( 61%)
83.1
(39%)
Foreign bank branch
Short-term external debt by bank
Domestic bank
Debt for
hedging
purposes
93.8 (22%)
Source: Bank of Korea
66.0
(45%)
79.5
(55%)
Foreign bank branch
Source: Bank of Korea
8
Korea’s Foreign Reserves are not liquid?
Korea has 6th largest foreign reserves worldwide and most of the foreign reserves are highly liquid
Adequate amount of foreign reserves
Highly liquid foreign reserves
FX reserves (US$ bn)
Total reserves (US$ bn)
270
224
199 210
239 262 264 258 239
155
178
132
96
74
86
40
103
121
Mostly AA-rated or above bonds
217.2
(90.6%)
1999 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 2Q08 3Q08
6th largest reserves globally (August 2008)
FX reserves (US$ bn)
China
Japan
Russia
India
Taiwan
Korea
Singapore
Hong Kong
1
1,808
Deposit
22.0
(9.2%)
997
582
296
282
243
170
158
Others 0.5 (0.2%)
Median of peers1: US$ 29.2bn
Includes Hong Kong (AA+), Slovenia (AA), Portugal (AA-), Italy (A+), Chile (A+),
Czech Republic (A) and Estonia (A). Credit ratings by S&P. Source: IMF.
Bond
Deposits
Others
Source: Bank of Korea
9
Korean Banks Have a Serious Liquidity Problem?
Supported by government’s consistent and strict management,
currency mismatch and duration mismatch have been minimized
No currency mismatch exists
High liquidity ratio: Low risk from duration mismatch
7-day maturity mismatch ratio (%)
Foreign currency financing/operation - Korean
banks (US$ bn, as of Jun.08)
3.1
3.0
Operation
Amount
Financing
Amount
2.0
1.0
Forward exchange
purchased (off B/S)
65.7
External debt
127.4
7-day Guidance: 0%
0.0
-1.0
Foreign loans1)
45.5
Residential deposits in
foreign currency
May
Jul.
9/25
9/29
10/01
10/06
10/08
19.3
3-month foreign currency liquidity rate (%)
Trade bill discount
operation
50.5
Swap with foreign bank
branches 2)
23.0
110
102.9
100
Others
(Securities, deposits, etc.)
40.0
Swap with bond
investors 2) (foreigners)
201.7
32.0
90
201.7
Guidance: 85%
80
May
1) NPL : 0.3%, 2) Estimates (not included in liabilities)
Jul.
9/25
9/29
10/01
10/06
10/08
Loan to Deposit Ratio is Too High?
Loan to deposit ratio has stayed low during recent years
Moderate loan to deposit ratio
Loan to deposit ratio (%)
140
130
128.2
126.5
126.8
123.7
124.2
120
105.4
110
104.2
104.6
104.2
103.2
100
90
2007
Jun.
2008
Jul.
2008
Aug.
2008
Sep.
2008
* US : 112%(Including CD, Jul 2008)
Source: Financial Supervisory Service
excluding CD
Including CD
11
Real Estate Bubble will burst?
Government’s strict DTI and LTV regulation has enhanced household finance soundness
Improving loan to value ratio
Dramatic growth of financial assets 1 2
LTV ratio (%)
Financial surplus (KRW trn)
120
56
113
105
100
30%
80
25%
62
60
40
35%
15%
10%
0
5%
(12)
2001
2002
Household Financial Surplus
0%
2003
2004
47.5
2007
1Q08
48.8
44
2005
20
2000
47.9
2006
2Q08
20%
32
(20)
49.5
48
60
54
25
52.2
52
2005
2006
Household Asset Grow th
2007
Debt Grow th
Stricter regulation on mortgage than other countries
Korea
U.S.
Hong
Kong
Germany
Japan
Mortgage/
GDP
33.4%
72.3%
37.3%
52.4%
36.2%
Regulation
System
Direct
Indirect
Direct
Mixed
Indirect
LTV Limit
40~60%
-
60~70%
60%
(Portion)
Indirect
-
60%
-
-
DTI Limit
40%
Source: Bank of Korea Financial Stability Report, April 2008
1 Financial Surplus = Financial Asset Increase - Financial Liability Increase.
2 Financial assets and liabilities exclude trade credits and other miscellaneous non-interest-bearing financial assets and debts.
12
Government Plan to Stabilize Financial Market
Two of the five financial stabilization measures would be sufficient in current condition
Should the need for additional steps arise, appropriate measure will be enforced
Measures
Policy
Providing liquidity
External debt
guarantee
Country
US, UK, Germany,
Australia
UK
Australia
US
Korea
● Additional
US$ 30bn
liquidity to
be provided
● 3-year
US$ 100 bn
guarantee
for external
debt
Acquisition of
insolvent debt
Increased
Recapitalization guarantee on bank
deposits
US
US, UK, HK,
US, UK, Germany,
Germany, Hungary,
France
Australia, Ireland
There is no need for additional steps;
appropriate measures will be enforced when necessary
13
Korea: The Case for Investment
● Stable GDP Growth Amidst Global Downturn
Strong Fundamentals
● Downward Trend in Inflation
● Improving Current Account Surplus
● Prudent Fiscal Position
● Reasonable Amount of External Debt
Stable Liquidity
● Sufficient Foreign Exchange Reserves
● Manageable Situation in Real Estate Sector
● Providing dollar liquidity to banks
Governmental Measure
● Government guarantees for Korean banks’ external debt
● More proactive measures prepared
14
Korean Economy: Positive Power Drives
Successfully Overcame
Oil Shock
■
■
■
Experience in Asian
Financial Crisis
More than 5000-year
History
Tax cuts
Regulatory reforms
Global standards in financial
sector
In history, Korea has proven its power to change
crisis into opportunity
Trust in Korean Economy. Positive Power Drives It
15
Thank You