FINANCE FORUM 2002

1. FINANCE FORUM 2002 Policy and Transactions - Synergies between the Bank and the IFC - Experience of IFC’s Investments in Korea’s Financial Sector between 1998 & 2002 Jean-Marie Masse Principal Investment Officer IFC East Asia & Pacific Department June 21, 2002

2. Background • Early 1997, a small presence of the World Bank Group in Korea • IFC had a portfolio of 3 to 4 financial sector and general manufacturing companies. • 1997 Asian Crisis: WB participated in the US$57 billion IMF-led rescue package for Korea • WB Committed US$10 billion, Disbursed US$7 billion. The Bank’s overall assistance program: • Financial sector reforms • Reform and privatization of state-owned companies • Labor market reform, Strengthening of Social Safety Net • Assistance to the government to strengthen prudential regulation and supervision of financial institutions • IFC’s strategy and principal priorities in financial sector • To help strengthen financial institutions through injection of equity and loans. • To inject liquidity into the system through trade enhancement facilities and other forms of assistance to ease access to international markets. • To provide technical assistance in important areas such as risk management, corporate governance and targeted capital markets development.

3. Co-ordination between the Bank and IFC • Weekly meetings amongst IMF-WB-IFC in 1998 • Co-ordinate and communicate initiatives undertaken in response to the Asian Crisis. • Joint World Bank / IFC Office opened in Seoul end of 1998 • Enabled better coordination between the WB and the IFC including discussions with government officials, exchange of experience and contact names. • Enabled consistent communication with Korean Senior Government officials. • Became a natural contact point for potential IFC domestic and foreign partners. • Circulation of financial policy papers to IFC • Allowed IFC to focus and prioritize its investment program in the financial sector. • Reassignment of World Bank and IFC Resident Representatives in June 2001 • Office kept by IFC, staffed with a part time senior consultant and one assistant. Closing of Office by December 2002 as IFC’s role is deemed fulfilled.

4. IFC Program between May 1998 and May 2002 • 16 Financial Sector Projects IFC’s Own Account : US$620 million, B-Loan : US$185 billion • Recapitalization and improvement of Corporate Governance - Hana Bank and Korea Long Term Credit Bank (merged with Kookmin Bank to form Korea’s largest bank) • 3 trade facilities - Sumitomo Bank, Bank of America and West LB • Recapitalization of a leasing company and a securities brokerage firm - Korea Development Leasing Company and Good Morning Securities • One of Korea’s first cross-boarder asset backed securities transactions - SOGEKO • Establishment of new institutions - H&Q Korea, SEI-Asset Korea Mutual Fund and Korea Home Mortgage Company (KoMoCo) • Home Mortgage Origination and Warehousing Line (IFC Board approved-May 28, 2002) • 4 Technical Assistance Programs - 2 in Banking, 1 in Housing Finance and 1 in Leasing for US$1.7 million budget. • 5 General Manufacturing Projects • IFC’s Own Account : US$100 million, B-Loan : US$18 million • Model restructuring in following sectors: paper, agribusiness, cable & electronic • Total: US$923.8 million investments approved by IFC Board over 4 year period • IFC Role in addition to Developmental Impact: • Catalytic • Institutional building • Honest broker

5. IFC Project Approvals – May 1998 to May 2002

6. World Bank Policies Diagnosis Asset management industry suffers from lack of transparency. Open-ended fixed income investment trusts offer guaranteed return to investors. Industry negatively impacted by Daewoo collapse. Recapitalization of most viable asset management firms, close or nationalize non performing firms. Need to deepen and broaden domestic fixed income market with transfer of best market practices. Life insurance companies and pension funds with long-term liabilities and short-term assets in need for quality asset management services, and investment in long term fixed income securities. IFC’s Impact Through Private Sector Transactions Supply: Establishment of KoMoCo to create new asset class: MBS. Long term vision is to become Korea’s Fannie Mae. Great upside potential; has issued US$2 billion MBS since May 2000. Demand: Turn around of Good Morning Securities which became a model of professional management, corporate governance practices and innovation (e.g. internet brokerage). IFC became the first foreign investor in Korea MBS in May 2001; enhanced market standards (structuring, credit rating, forex hedging) Recapitalization of SEI-AK which became Korea’s largest mutual fund management company with US$1.1 billion assets under management and about 25% market share. Recapitalization of CJIS by IFC/Prudential Financials. Prudential benefited from IFC’s expertise in Korea, and is now looking for additional investment opportunities. CJIS has US$10 billion assets under management and about 7% market share. World Bank Policies and IFC’s Impact – Example: Fixed Income Market

7. World Bank Policies and IFC’s Impact - Other Examples • Banking • Housing Finance • Corporate Restructuring and Turn Around • Corporate Governance • Induction of Qualified Foreign Partners/Know-How Transfer • Innovation in Financial Products • Optimization of Legal Work • Privatization • Viewpoint of Korean Government Officials • Products Cross-Selling Amongst IFC Portfolio Companies

8. Conclusion – Synergies Between the Bank and the IFC WB/IFC • Linkage IFC/WB • World Bank VP Co-ordination • Joint World Bank / IFC Office • Comprehensive and Medium Term approach of IFC with 1, 2 and 3 year strategies • Fast pace IFC investments in order to better accompany at private sector level national policies reforms=>allows good timing of investments, some first mover advantage and higher developmental impact as IFC’s investments can better set the trend for future financial sector development • High returns (IRR>100% for 3 projects on a 3-year cycle) allows us redeployment of gains in other parts of the world => IFC has been a counter cyclical investor. • Important to maintain lessons learnt from experiences in Korea A World Bank / IFC coordinated intervention to assist a country affected by systemic crisis could be a visible core competence within the World Bank Group