Reprinted in this book are the two papers presented at the KIF seminar on improving the competitiveness of Korean banks and the following discussion. The seminar was chaired by Professor Un Chan Jung and the papers were written by Professor Ji Man Jung and Dr. Dong Hyun Ji. Five panelists who participated in the discussion are Dr. Dong Won Kim and Dr. Han Soo Yu and Professor Seok Hun Yoon and Mr. Tae Kyu Lee and Mr. Seok Ju Hong.
Professor Jung's paper discusses the current status of Korean banks with a focus on profitability. He shows empirical evidence on the determinants of profitability in Korean banks. His findings are the following : (1) NPL ratios are the most important factor, (2) the sensitivity of ROA to the Net Interest Margin is 0.1, (3) the higher the BIS capital ratio, the higher the ROA, (4) the level of the interest rate is positively correlated to the ROA, (5) there is no correlation between the deposit size and ROA. Professor Jung argues that two sets of conditions should be meet in order to improve the competitiveness of Korean banks : various regulations which prohibit competition should be eliminated and the accountability of bank management should be enhanced.
Dr. Ji's paper reviews the restructuring of Korean banks in the area of cost savings. He concludes that the widening of the net interest margin and fee income are the remaining areas for Korean banks to achieve 1% ROA. In order to increase the net interest margins, Korean banks need to focus on target customers before they set up a loan interest rate. From there, Korean banks can differentiate a loan interest rate according to the credit risk of the customers. To increase fee income, Korean banks should charge the actual costs for the services. For instance, a demand deposit account maintenance fee should be introduced to the accounts which fail to keep a minimum balance.
Following the presentation of the two papers, panelists discussed the pros and cons of the paper as well as their own thoughts. Dr. Kim emphasized that Korea's anti-banking culture is the biggest hurdle to overcome for Korean banks to be profitable. Dr. Yu highlighted that the government policy should be more creditable and argued that the government should not present blue print for the second round of financial restructuring. Mr. Lee pinpointed that for Korean banks to be profitable it is necessary to minimize bad loans while Mr. Hong explained how Korean banks have tried to improve profitability, particularly credit risk management systems. All the panelist agreed that all interest parties―depositors, borrowers, bankers and government―should be aware of the importance of bank profitability so that Korean banks will be more competitive.
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|Series Title; No||정책조사보고서 / 2000-05|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|