Questionnaire on Credit Supplementation System & the 22nd ACSIC Conference s Theme Please send this form via email by July 15, 2009 to: The Secretariat The 22nd ACSIC Conference Small & Medium Enterprise Credit Guarantee Fund of Taiwan 4F., No. 6, Sec. 1, Roosevelt Rd., Taipei City 10066, Taiwan (R.O.C.) Tel.: +886-2-2321-4261 ext. 563 or 229 Fax: +886-2-2394-7317 Email: acsic22@smeg.org.tw Website: www.smeg.org.tw/acsic22.htm Name and Address of Institution Name of Institution: Address of Institution: Representative: Korea Federation of Credit Guarantee Foundations (KOREG) 282-1, 15th Floor Narakium Center, Wolpyeong-dong, Seo-Gu, Daejeon, Korea, 302-280 Telephone No.: +82-42-480-4201 Fax No.: +82-42-480-4007 Email: URL: Yong-doo Lee, Chairman & President ydlee0108@koreg.or.kr http://www.koreg.or.kr Contact Person Name: Dong-hun, LEE Position: Senior Manager Telephone No.: 82-42-477-6002 Fax No.: 82-42-476-6086 Email: donghun99@koreg.or.kr / donghun-99@hanmail.net p. 1/12 Institution: 9. KOREG
1. History of the system: (a) Establishment Questionnaire on Credit Supplementation System Credit guarantee unions have been established in each metropolitan city and province since 1996 to extend credit guarantees for small & micro enterprises lacking substantial collateral. The Unions were established in accordance with the provision of Article 32 of the Civil Law. To strengthen credit support for small & micro enterprises, the Regional Credit Guarantee Foundation Act, a special law, was enacted in September 1999 and the Unions changed their name from Credit Guarantee Union to Credit Guarantee Foundation (CGF) in March 2000. There are currently 16 credit guarantee foundations throughout Korea. The Korea Federation of Credit Guarantee Foundations (KOREG) was established August 7, 2000, in accordance with the Regional Credit Guarantee Foundation Act, in order to contribute to the advancement of small & micro enterprises as well as local economics by working to enhance the mutual benefits of 16 Credit Guarantee Foundations(16 CGFs) and by providing re-guarantee services. (b) Changes < KOREG > Mar 2000: The Regional Credit Foundation Act took effect Aug 2000: KOREG was established Dec 2002: Amendment to the Regional Credit Foundation Act (Establish provisions related to re-guarantee services) Jan 2004: Began offering re-guarantee services to member foundations May 2005: Accumulated a re-guarantee balance of one trillion won Mar 2006: Amendment to "the Regional Credit Guarantee Foundation Act (Establish provisions related to making it obligatory for financial nstitutions to contribute to KOREG and CGFs) Dec 2008: Accumulated a re-guarantee balance of six trillion won p. 2/12 Institution: 9. KOREG
July 2009: Began offering guarantee service for individuals < CGF > Feb 1996: Gyeonggi Credit Guarantee Union was established Apr 1996: Gyeongnam Credit Guarantee Union was established Jun 1996: Gwangju Credit Guarantee Union was established Nov 1996: Daegu Credit Guarantee Union was established Mar 1997: Daejeon Credit Guarantee Union was established Jun 1997: Busan Credit Guarantee Union was established Dec 1997: Incheon Credit Guarantee Union was established3 Sep 1998: Chungnam Credit Guarantee Union was established Mar 1999: Chungbuk Credit Guarantee Union was established Apr 1999: Gangwon Credit Guarantee Union was established Jun 1999: Seoul Credit Guarantee Union was established Dec 1999: Gyeongbuk Credit Guarantee Union was established Mar 2000: Enforcement The Regional Credit Guarantee Foundation Act changed from a Union to a Foundation Apr 2000: Ulsan Credit Guarantee Foundation was established Jun 2001: Jeonnam Credit Guarantee Foundation was established Dec 2002: Jeonbuk Credit Guarantee Foundation was established Aug 2003: Jeju Credit Guarantee Foundation was established 2. Objective of the system: KOREG Contribute to the development of local economics by enhancing mutual benefits as well as the sound development of member foundations CGF (1) Extending credit guarantees for the liabilities of small & micro enterprises that are lacking substantial collateral (2) Assisting in the execution of policies that are supportive of indigenous industries of each city and province 3. Items of your business: KOREG The major activities of KOREG are as follows; - Conduct R&D, advancing technique related to credit investigation and methods of guaranteeing, the management of credit information - Cooperate with government, financial and other related organizations - Manage joint projects and programs initiated by member foundations (16 CGFs) p. 3/12 Institution: 9. KOREG
- Provide education and training for executives and employees of member foundations (16 CGFs) - Operate re-guarantee services for member foundations (16 CGFs) CGF The major activities of CGF are as follows; - Credit Guarantee Services - Management Consulting Services 4. Organizational overview: (a) Legal Background, Corporate Status and Law - Related Law: The Regional Credit Guarantee Foundation Act - Established under the special law, the Regional Credit Guarantee Foundation Act, KOREG & CGF are a non-profit organization with a special status, similar in character, to a juridical foundation. CGF can also be characterized as a public organization that carries out credit guarantee services and as an institution to connect enterprises with financial institutions. (b) Organisation Chart KOREG 1 Head-division, 4 Divisions and 1 officer 30 Employees (As of Dec. 31, 2008) Auditor Compliance officer Chairman & President Executive Vice President General Assembly Re-guarantee Committee Board of Directors Management Innovation Head-division Business Support Division Re-guarantee Division Information System Division General Affairs Division CGF - 16 CGFs, 670 Employees, 77 Branches (As of Dec. 31, 2008) (c) Competent Authority The competent authority for the operation of KOREG & CGF is the Small & Medium Business Administration (SMBA). p. 4/12 Institution: 9. KOREG
(d) Affiliated Companies (if any) 5. Capital: (a) Source of Paid-up Capital KOREG s capital funds are mainly from the contributions by the government, financial institutions and CGFs. * Financial institutions have contributed to KOREG and CGFs since Nov. 2006 (b) Amount of Capital/Net worth The accumulated amount of KOREG s capital fund is 618.2 billion won. (c) Recent Increase in Capital KOREG s capital funds consist of contributions made by CGFs (General accounts related to KOREG s business support to CGFs) and the government and financial institutions (Re-guarantee account related to KOREG s re-guarantee business). < General Account > (Billion won) Contributions CGFs Financial Institutions Total Classification During Accumulation During Accumulation Accumulation the year the year 2007 0 7.4 1.0 1.0 8.4 2008 9 16.4 0 0 17.4 < Reguarantee Account > (Billion won) Contributions Government Financial Institutions Total Classification During Accumulation During Accumulation Accumulation the year the year 2007 10.5 64.7 16.9 18.1 82.8 2008 330.0 394.7 188.0 206.1 600.8 * Financial institutions have contributed since November 2006 p. 5/12 Institution: 9. KOREG
6. Outline of the system: (a) Relationship between Organization and Related Institutions (b) Relationship between the Lender (Creditor) (c) Relationship between the Borrower (Debtor) 7. Operation of the system: (a) Schematic Flow Diagram The structure of the Credit Guarantee System is shown above in section 6. Out line of the system (b) Brief Explanation Every fiscal year, KOREG and CGFs conclude a comprehensive re-guarantee contract. The contract includes a ceiling amount of re-guarantee liabilities that KOREG assumes during the term. Within this ceiling amount, the CGF s guarantee risks are partially and automatically covered by KOREG under the following operational flow of the Credit Guarantee System and Re-guarantee System. 1. The small & micro enterprises apply for the guarantee to a CGF. 2. The CGF issues a letter of guarantee to the financial institution after screening the guarantee application. 3. The financial institution provides the guaranteed loan to a small & micro enterprises. 4. The small & micro enterprise pays the guarantee fee to the CGF. 5. The CGF pays the re-guarantee fee to KOREG. 6. In case small & micro enterprises cannot repay the guaranteed loan, the financial p. 6/12 Institution: 9. KOREG
institution requests payment in subrogation to the CGF. After screening the request for payment in subrogation, the CGF repays the financial institution in place of small & micro enterprises. 7. The CGF claims payment of loss compensation (reguarantee money) to the KOREG, after making payment in subrogation. 8. KOREG pays the CGF 50% of the subrogated amount after screening the claim of loss compensation. 9. When the CGF recovers money by exercising the right of indemnity, it pays KOREG the sum equivalent to the proportion covered by the re-guarantee. < Re-guarantee Services of KOREG > Coverage and amount: 50% of the original guarantee, to a maximum of 400 million Won * 60~80% of the original guarantee in cases where local economies are having difficulty or have been hit by natural disaster. The rate of re-guarantee fee: 0.75~0.85% of the reguaranteed amount per annum. 8. Eligible conditions for guarantee/insurance service: (a) Enterprises Individual proprietors or owners of an incorporated business who have business establishments within the jurisdiction of one of the credit guarantee foundations; business owners with promising business prospects and good credit records Ineligible companies are as follows; - Companies with a history of unpaid debt to financial institution - Companies owned or operated by a person responsible for the default of the above company or by a guarantor of the above company. - Those whose company is currently in suspension - Companies owned or operated by a bad credit holder, or a company that has a subordinate or dominant relationship with a bad credit holder - Companies that present false credit information - Companies that have overdue bank loans (b) Financing Facilities - Guarantee for Bank Loans : Guarantee for liabilities that a company bears through borrowing money from financial institutions - Guarantee for Payment Guarantee of Banks : Guarantee for liabilities that a company has to make to lending institutions - Guarantee for Loans of Non-Banking Financial Institutions : Guarantee for loans from non-banking financial institutions. p. 7/12 Institution: 9. KOREG
- Guarantee for Commercial Bill : Guarantee for payment, endorsements and acceptance of commercial bills, and guarantee for secured bills. - Guarantee for Leases : Guarantee for liabilities that a company bears through renting/leasing facilities from leasing companies. - Guarantee for Performance : Guarantee for solvency liabilities that accompany contracts between companies and Central government, local government, or public organization (c) Eligible Financial Institutions Financial Institutions can mean any of the followings; 1. Banking institutions provided for in Subparagraph 2 Article 2 of the Bank Act 2. The Korea Development Bank 3. The Industrial Bank of Korea 4. The Export-Import Bank of Korea 5. Trust companies under the Trust Business Act 6. Other financial loan institutions as provided by the Presidential Decree (d) Maximum Amount - The maximum amount of a general credit guarantee for each firm is 400 million won. - The maximum amount of a government guarantee for the opening and/or reengineering of small & micro enterprises, or for the opening of a venture company is 50 million won. (e) Guarantee Fee/Insurance premium CGF s guarantee fee is 0.5~2.0% of the outstanding guarantee amount (per year) (f) Collateral and Guarantor Takes no collateral for guarantees. And in principle, no joint-guarantor is required except those directly engaged in management likes : - Joint owners and CEO - Major stockholders (e.g. directors) and executives who are directly involved in management - Relevant companies doing business in Korea (g) Credit Investigation In order to investigate the credit standing of an enterprise thoroughly, the welltrained personnel of CGF visit the applicant company and perform extensive research on the company s operational, marketing, managerial condition, etc. Then CGF s personnel draw a report about the credit status of the applicant. The contents p. 8/12 Institution: 9. KOREG
of the report include information on business operations, credit records, financial status, personnel and management, etc (h) Leverage/Gearing ratio The aggregate of CGF s outstanding credit guarantees is allowed to reach a maximum of 15 times the amount of its capital fund (i) Guarantee Coverage CGF adopts a partial guarantee system whereby default risk of borrower is shared with lending financial institutions (creditors). (j) Source of Income - Guarantee fee - Revenue from fund operating - Interest income 9. Payment under guarantee/insurance: (a) Conditions for Payment The period, from the recognition of credit guarantee default to the creditor s request for payment under guarantee, varies depending on the agreement between CGF and the creditor, the commercial law and other laws. The timing of the request for payment under guarantee is as follows; TYPE Guarantee for Bank Loans Guarantee for Payment Guarantee of Banks Guarantee for Loans of Non- Banking Financial Institutions Guarantee for Commercial Bill Guarantee for Leases Guarantee for Performance CONDITION After 3 months from the time that a debtor does not pay an obligation After 3 months from the time that a debtor does not pay an obligation After 3 months from the time that a debtor does not pay an obligation At the time that bill is not paid within the period After 3 months from the time that a debtor does not pay an obligation At the time that the cause of deposit forfeiture occurs because of non-conclusion and dissolution of a contract In spite of the above regulations, there are exceptional cases in which a creditor can ask CGF for payment without further delay. 1. A firm files for bankruptcy or is in liquidation 2. A firm has not been operating for 6 months or more p. 9/12 Institution: 9. KOREG
3. When the Board of Executive Directors determines that the firm can no longer exist and it is unlikely the debt will be paid. However, a creditor should remember the subrogation application period. (b) Coverage Payment CGF s subrogation payment covers principal, stipulated interest on the loan to the date of the subrogation payment and other expenses for the collection of the debt. 10. Recovery of payment: (a) Recovery (b) Subrogation After the subrogation payment, CGF files a claim for re-guarantee with KOREG which makes a re-guarantee (50% of CGF s subrogation payment). And then CGF takes a series of actions to collect the rights to claim, such as preservation of rights, litigation, exercise of its rights on property and public auctions of the collateral. However, CGF tries to persuade the debtors to make voluntary repayment, because it is often costly and time-consuming to conduct legal proceedings 11. System problems: None 12. Latest operational results: (Billion won) Fiscal year Item 2005 2006 2007 2008 Acceptance of Number 79,929 77,666 94,582 187,878 Guarantee Amount (2,157) (2,369) (2,751) (3,890) Outstanding Guarantee/ Number 136,228 164,386 195,808 306,006 Insurance Liabilities Amount (3,413) (4,032) (4,586) (5,989) Payment under Number 5,319 3,098 3,261 4,201 Guarantee Amount ( 113.7) (68.0) (57.2) (77.4) Recovery Received Number 1,640 2,175 2,156 2,233 Amount ( 49.8 ) (59.2) (58.0) (58.1) Income from Guarantee Fee ( 23.7 ) (30.6) (38.1) (50.3) Number of Guaranteed Enterprises (136,228) (164,386) (195,808) (306,006) * Regarding the amounts, please display them in both your (million) home currency and that of million US Dollars. * Exchange rate: US$1 = KRW 1,257 ; (Date) December, 2008 p. 10/12 Institution: 9. KOREG
Questionnaire on The 22nd ACSIC Conference s Theme The theme of the 22nd ACSIC Conference: The Measures Taken by Credit Guarantee/Insurance Systems to Exert the SME- Assistance Functions during the Global Financial Crisis. * The following questions/answers are quoted from the results of the survey made/permitted by the JFC, Japan early this year (2009). * To save your time, please provide/update the following information, if any. Please describe KOREG/CGF s efforts towards the current global financial crisis (1) Have SMEs in Korea faced difficulties under the current global financial crisis? YES NO (2) Has KOREG/CGFs implemented (or plan to implement) programs to support those SMEs? YES NO (3) What kind of measures has KOREG/CGFs taken to support those SMEs? Enhancement of existing programs Establishment of a new program (4) Please describe the details of the measures of (3) and indicate whether they are conducted under KOREG/CGFs efforts or as a part of government s policies. Enhancement of existing programs By KOREG/CGFs own effort As a part of the government s policy - Increase the max amount for guarantee - Increase the max amount of reguarantee - Increase the guarantee coverage ratio - Increase the reguarantee coverage ratio - Relax the required criteria of guarantee support - Simplify the procedure for guarantee - Expansion of eligible enterprises - Roll-over the guarantees that mature in 2009 - Available Overlapping Guarantee - Loosening the guarantee review method * Ease the limit on sale, loan to sales ratio, operating loan to sales ratio, liability ratio p. 11/12 Institution: 9. KOREG
Establishment of a new program By KOREG/CGF s own effort Introduce special guarantees As a part of the government s policy (1) Special Guarantee for Credit-Neglected Self-employed - Self-employed with low credit ratings - Micro enterprises without business registration (2) Special Guarantee for Liquidity Support - Micro enterprises suffering from liquidity problems (3) Special Guarantee for Traditional markets - Micro enterprises operating business in traditional market (4) Special Guarantee for Handicapped-Owned Company - Company owned by disabled people (5) Special Guarantee for Individuals p. 12/12 Institution: 9. KOREG