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Aug. 11 th , 2009 Dong-Hun, LEE / Senior Manager

KOREG & CGFs’ Efforts to help SMEs under the Current Financial Crisis. Aug. 11 th , 2009 Dong-Hun, LEE / Senior Manager. 1. 1. Contents. Overview of KOREG & CGFs. Current Situation of SMEs. Measures to overcome Economic Crisis. Policy Direction. 2. Ⅰ. Overview of KOREG & CGFs. 3.

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Aug. 11 th , 2009 Dong-Hun, LEE / Senior Manager

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  1. KOREG & CGFs’ Efforts to help SMEs under the Current Financial Crisis Aug. 11th, 2009 Dong-Hun, LEE / Senior Manager

  2. 1 1 Contents Overview of KOREG & CGFs Current Situation of SMEs Measures to overcome Economic Crisis Policy Direction

  3. 2 Ⅰ Overview of KOREG & CGFs

  4. 3 1. Introduction Guarantee Portion SMEs (2,616,222 / As of 2007) 2.1% Medium Businesses : 3.3% 10.7% CGFs Small Businesses : 8.7%  87.2% Micro Enterprises : 87.9% Conglomerates (2,461 / As of 2007) Support & Reguarantee Account for only 0.1% Individuals KOREG Guarantee With low credit ratings

  5. 4 2. CGFs (Credit Guarantee Foundation) Special organization established by Metropolitan Local Governments (Under the RCGF Act) Legal Status Establishment Since 1996, 16 CGFs (77 branches) Guarantee for the debts of SMEs Major Functions 670 (927 including irregular workers) Employees Basic Assets KRW 1.7 trillion Outstanding Guarantee KRW 9.1 trillion (As of June. 2009)

  6. 5 3. KOREG (Korea Federation of CGFs) Special organization established by CentralGovernment Legal Status Aug. 2000 (Under Regional CGF Act) Establishment Supervisory Authority SMBA (Small & Medium Business Administration) Promote mutual benefits among CGFs Operate a reguarantee service for CGFs Major Functions Employees 30 (48 including irregular workers) 1 Head-division, 5 Divisions Organization

  7. 6 4. Outline of the System Reguarantee System Guarantee System Support Government Local Government Contribution & Supervision Supervision Contribution & Supervision SMEs C G F KOREG Guarantee Application and Approval Comprehensive Reguarantee Contract Guarantee Contract Financial Institution

  8. 7 5. Performance 9.1 (Unit : tril KRW) 6 Outstanding Guarantee 3 1 2004 2005 2008 2009(June) 490,000 310,000 140,000 Cases 30,000 2005 2008 2009(June) 2004

  9. 8 Ⅱ Current Status of SMEs

  10. 9 1. Current Situation of SMEs < Origin > Sub-prime mortgage crisis … < Spread > Spread to world economy … (Global financial crisis) < Overall > Credit crunch happens … < SMEs > Difficulties in accessing financial markets worsen … < Banks > Default rates increase and Passive in SMEs loans < Micro enterprises and people with low credit ratings > Face more difficult situations compared to other businesses 

  11. 10 2. Government & KOREG (CGFs)’s Response Government Needs to take positive measures for quick financial assistance through Guarantee Institutions’ guarantee expansion Introduce economic stimulus packages to solve economic crisis Take emergency measures on credit guarantee operation (temporarily in 2009) KOREG & CGFs Expand guarantee scale and ease the guarantee process, etc, in accordance with government policy

  12. 11 Ⅲ Measures to overcome Economic Crisis

  13. 12 1. Guarantee Policy (1) Expansion of Guarantee Volume Outstanding(08) 6.3 tril KRW (09) 11.85 tril KRW Supplied (08) 3.8 tril KRW (09) 8 tril KRW Cases(08) 310,000 Cases (09) 970,000 Cases Increase the Contribution from Government From Central Government - KOREG (07) 10.5 bil KRW (08) 33 bil KRW (09)260bil KRW - CGFs (07) 15.4 bil KRW (08) - - (09)270 bil KRW From Local Government - CGFs (07) 80.9 bil KRW (08) 65.6 bil KRW (09) 90 bil KRW

  14. 13 1. Guarantee Policy (2) Expansion of Guarantee & Reguarantee Max Amount Guarantee400 mil KRW 800 mil KRW Reguarantee200 mil KRW 400 mil KRW * per each company Expansion of Guarantee & Reguarantee Ratio Guarantee Reguarantee 50% ~ 60% 50% ~ 80% Up to 50 mil KRW : 100% More than 50 mil KRW : 95% Up to 20 mil KRW : 100% More than 20 mil KRW : 85%

  15. 14 1. Guarantee Policy (3) Rollover of Existing Guarantees All existing guarantees that mature in 2009 is eligible for roll-over - With the exception of bankrupt or closing business, etc. Available Overlapping Guarantee Multiple guarantees are available among guarantee institutions - CGFs & KODIT & KIBO - CGFs’ multiple guarantee portion : 7.8% (As of May, 2009) * In the past, CGFs did not provide guarantees if the business was using guarantees from KODIT and KIBO

  16. 15 2. Guarantee Review Method Loosening the Limit on Sales To reflect considerable reduction on sales, the limit on sales amount has loosened for the guarantee - 1/6~1/3 of total sales 1/2 of total sales Relaxing the Required Criteria of Guarantee Ease the “loan to sales” ratio - Should not exceed 70% 100% Ease the “operating loan to sales” ratio - Should not exceed 50% 100% Ease the liability-ratio - 2 times the average of the same industry 5 times

  17. 16 3. Eligibility & Review Process Expansion of Eligible Company (Credit Rating Categories) Lower the eligibility for the guarantee * Out of 10 Categories “AAA – AA – A – BBB – BB – B – CCC – CC – C – D” 6th Grade(“B”grade) 7th Grade(“CCC”grade) Shortening the Required Period for Guarantee Review Guarantee process will be completed within 7 days - 7 days : Small sum method & Standard method - 12 days : Detailed method 7 days * All methods

  18. 17 4. Special Guarantee Program (1) Special Guarantee for Credit-Neglected Self-employed Eligibility 1) Self-employed with low credit ratings 2) Micro enterprises without business registration Max amount 1) 5 mil KRW 2) 3~5 mil KRW Preference - Relax the required criteria of guarantee - Simplify the procedure for guarantee Performance : 181 billion KRW / 39,348 Cases (As of June)

  19. 18 4. Special Guarantee Program (2) Special Guarantee for Liquidity Support Background - Government’s Liquidity Support Plan for SMEs(Oct, 2008) Eligibility - Micro enterprises suffering from liquidity problems Max amount 1) 20 mil KRW : 1st (AAA) ~ 6th (B) Grade 2) 15 mil KRW : 7TH (CCC) Grade 3) 10 mil KRW : Below 8th (CC) Grade Performance : 1.9 trillion KRW / 130,532 Cases (As of June)

  20. 19 4. Special Guarantee Program (3) Special Guarantee for Traditional Markets Background - Government’s policy to help Micro enterprises of traditional markets and revitalize traditional markets Eligibility - Micro enterprises operating business in traditional markets * Require a recommendation letter from the market merchant association Max amount - 5 million KRW Performance : 5.6 billion KRW / 1,137 Cases (As of June)

  21. 20 4. Special Guarantee Program (4) Special Guarantee for Handicapped-Owned Company Background - “2008 New Start Project” of Government (Mar, 2008) Eligibility - Company owned by disabled people Max amount - 50 million KRW - 100 million KRW (Manufacturing) Performance : 7.6 billion KRW / 272 Cases (As of June)

  22. 21 4. CooperationGuarantee Program Purpose To enhance the relationship between Banks and CGFs To fulfill social responsibility as a public company and financial institution Details With Kookmin Bank - Target Amount : 1 trillion KRW - Performance : 469 billion KRW / 21,759 Cases (As of June) With Nonghyup Bank - Target Amount : 300 billion KRW - Performance : 215 billion KRW / 11,989 Cases (As of June)

  23. 22 5. KOREG’s Individual Guarantee program Background Due to the economic downturn, individuals are facing capital liquidity problems Banks have been reluctant to grant loans to individuals with relatively low credit ratings Therefore, a need for individuals’ easier liquidity access has been urgently called for Details Eligibility : Salaried people who have been working over 3 months and have low credit ratings * Credit Rating : 7th grade ~ 9th grade Target : 500 billion KRW / 167,000 Cases Guarantee Amount - 5 mil KRW (7th grade), 4 mil KRW (8th grade), 3 mil KRW (9th grade)

  24. 23 Business Expansion of KOREG 1st Stage 2000 ~ 2003 2nd Stage 2004 ~ 2009 3rd Stage 2009 (July) ~ 1. Supports for CGFs 1. Supports for CGFs 1. Supports for CGFs 2. Re-guarantee for CGFs 2. Re-guarantee for CGFs 3. Guarantee for Individuals

  25. 24 6. What we expect from such measures < KOREG & CGFs > - Implement the expanding measures on credit guarantee - Fulfill the duty & responsibility as a public organization < Bank > Relieve the burden of credit risks Expand finance toward Micro enterprises & Low credit ratings < Micro enterprises & People with low credit ratings > Overcome ongoing economic difficulties & enforce self-sustainability < KOREG & CGFs > Strengthen the function and importance in the national economy 

  26. 25 Ⅳ Policy Direction

  27. 26 6. Policy Direction 1. Continuous expansion of the resources for guarantee operation - Seek various ways to secure guarantee funds - Minimize the guarantee risk 2. Preparing region-oriented guarantee system - Strong support for local government’s policy - Strengthen cooperation with relevant organizations 3.Expansion of guarantee portion for Micro enterprises - The most vulnerable sector among businesses - Considering policy-based economic and social needs < Effect > Will contribute greatly to the growth of micro enterprises and balanced development between regions through job creation, employment stability and increased incomes

  28. Thank you! Dong-Hun, LEE ( Dennis) donghun99@koreg.or.kr T : +82-42-477-6002 F : +82-42-476-6086

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