Upload
shon-gordon
View
219
Download
0
Embed Size (px)
Citation preview
November 2015
Korea Credit Guarantee Fund
(KODIT)
Measuring Soundness and KPI of KODIT
Evaluation of CGS
CONTENTS
III
Overview of KODIT I
Performance EvaluationIV
Roles and Objectives of CGSII
3/45
Overview of KODITI
4
• Status: Not-for-profit special legal entity backed by the Gov’t
• Establishment : 1976
• Capital Fund : USD 5.2 billion
• Outstanding Guarantee : USD 44.0 billion (* New supply : 12.6 USD billion (’14))
• Number of guaranteed companies : 215,728
• Number of Employees : 2,241
• Business network : 1 Head office, 9 Regional HQs, 106 Branches
Overview
5
Main busi-ness
Corporate man-agement con-sulting
Credit infor-mation man-
agement
Credit in-surance
Infrastructure credit guarantee
Main Businesses
Guarantee-aligned Equity Investment
Credit guaran-tee
6/45
Roles and Objectives of CGSII
SMEs Banks
CreditEvaluation
Guarantee (Reduce
Credit Risk)CGS
Hurdles of financing
7
Basic Structure of Credit Guarantee
Banks
• Necessity to improve competence of SMEs
• Budgetary constraint for direct loan
• Minimal intervention in the financial market
Governments focus on the development of SMEs & economic growth
CGS
Government – Designer & Supervisor
SMEs(Target)
Gov’t
8
Participants
Banks
Gov’t
• High risk attribute & volatile business performance
• Lack of collateral
• High interest burden
SMEs have limited access to formal finance due to …
CGS SMEs(Target)
SMEs - Borrowers
9
Participants
Gov’t • Lack of experience on SME loans
• Risk-adverse tendency & reliance on collateral
• Sensitivity to high cost of SME loans
Banks have a tendency to avoid loans for SMEs
CGS
SMEs(Target)
Banks - Lenders
Banks
10
Participants
• Ease access to formal finance
• Lower interest rate
• Provide fund for long-term investment
For SMEs
• Provide assured collateral
• Introduce new loan markets
• Improve capital adequacy ratio
For Banks
• Higher competitiveness of SMEs
• Job creation & supplement social safety-net
• Financial market progress
• Provide counter-cyclical macro economic tools
For Gov’t
11
Objectives of CGS
Evaluation of CGSIII
Legal Support
Supervision
1. Legal support & Supervision1. Legal support & Supervision 2. Financial stability2. Financial stability
Source of fund
Guarantee fee
Fund InvestmentFour
Major Criteria
Criteria for Evaluation of Soundness
Credit risk management
Operational risk (audit)
4. Risk Management4. Risk Management3. Operational mechanism3. Operational mechanism
Guarantee procedure
Eligibility & ceiling & coverage
Other supporting systems
13
1. Legal Support & Supervision
14
• Korea Credit Guarantee Fund Act
• Improve financial accessibility for enterprises• Credit guarantee, investment, collection, etc.
• Contribution from government, bank, enterprises, etc.
Legal basis
Clear objective & mandate
Source of fund
• Government can supplement capital deficiencyCapital
Supplementation
15
Legal Support
• Relief of responsibility for non-serious mistake for employees
• Access to credit information from public organizations Other clauses
16
Supervision
The Board of Policy
The Board of Directors
KODIT
Budget Planning Operation Supervision Capital Contribution
Board of Audit and Inspectionof Korea
2. Financial Stability
17
18
Sources of Fund
Government(irregular)
Banks (regular)
Others (irregular)
Subject to yearly budget of the government
Mandatory donation in proportion to outstanding corporate loans (APR 0.225%)
Occasional contributions from banks or large enterprises
45%, USD
10 bil-lion
55%, USD
11 bil-lion
5%
Government Banks Others
• Contributions
• Cumulative contributions ( ~ 2014)
19
Guarantee Fee
• Fee rate is risk proportionate and follows market principles, but still has subsidy element
- Basis rate is differentiated by credit rating of each firm : APR 0.6~3.0%
(Adjustment) added or subtracted by policy purposes
SMEs have to pay the fee for the financial benefit from CG
Guarantee fee is a major source of fund in provision for claim payment
• Rationale for fee
• Fee rate
2012 2013 2014
Total Cash inflow (A) 17.4 17.0 17.5
Guarantee fee (B) 5.5 5.8 6.1
Proportion (B/A) 31.4% 34.2% 34.9%
(Average fee rate) 1.21% 1.24% 1.27%
(Unit : billion USD)
20
Fund Reinvestment
2012 2013 2014
Total Cash inflow (A) 17.4 17.0 17.5
Investment income(B) 3.1 1.9 1.4
Proportion (B/A) 17.6% 11.2% 7.8%
Rate of return 4.60% 2.93% 4.49%
Maximizing rate of return while properly managing liquidity risk
- High rate of return < Safe investment & liquidity
• Reinvestment Policy
• Strict liquidity requirement : Cash-outflow = capital fund x 42.6%
• Limited scope of investment asset (KCGF Act)
- Bank deposit (CD, RP), treasury bond, municipal bond, corporate bond (AA- or higher)
• Characteristics of KODIT Reinvestment
3. Operational Mechanism
21
22
Guarantee Procedure
Apply&
Interview
• SME’s application
• Eligibility check-up by
interview with owner
Credit Analysis &
On-site Visit
Evaluation&
Approval
Issuance of Guar-antee Letter
Credit Guarantee Procedure
• Document submitted
& reviewed
• Analyst’s on-site visit
• Credit rating &
Evaluation
• Guarantee approval
• Contract & Paying fee
• Issue of guarantee
• Individual approach (case by case)
23
Claim Payment and Collection
③
Subrogation Payment
②
Claim
Banks
⑤Repayment
④Debt C
ollectio
n
SMEs
KODIT
① Default
▪ Apparent predictable criteria and speedy payment procedure
- Boost the popularity of guarantee products from banks
• Subrogation Payment
▪ Through in-house collection prevent moral hazard of SMEs and boost capital reserve
• Collection
▪ All for-profit entities are eligible with some exceptions ▪ Adopts the “negative list system”
Eligibility & Ceiling & Coverage Ratio
Eligibility
24
▪ General ceiling : USD 2.7 million * Special ceiling : USD 6.3 million ▪ Firm specific ceiling (working capital only) - (sales) within 1/2 ~ 1/6 of annual sales amount - (equity) within 3 times equity capital
Ceiling amount AVG : USD 180,000
▪ Coverage ratios are differentiated by ① Credit rating and ② Period of guarantee usage (policy purpose)▪ Coverage ratio : 50% ~ 85% * Enterprises with low credit ratings get higher coverage
Coverage ratio AVG : 87%
4. Risk Management
25
26
Risk Management Tools
DefinitionType
Loss arising from borrower’s default
Financial loss from fluctuations in market prices
Loss from unstable or failed process, people, systems or external events
Credit Risk
Market Risk
Operational Risk
Tools
Internal rating system
Investment policy
Internal control and auditing
27
Credit Risk Management
Personal level
• Assess “soundness of guarantee” for ev-ery employee
• Objective approval decision with credit rating system
Branch level
• Distribute target of rate of risk taking
Company level
• Scenario manage-ment
according to total risk taking rate and credit VaR
• Systematic credit risk management
28
Quantitative Model
Scores from Financial Factors
Scores from Quantitative Factors
Scores from Qualitative Factors
CreditInvestigation
Owner’s CB rating
Combination of Model(Combined Score)
Pre-Rating
Filtering
CCRS Rating (Final)
Financial Model Qualitative Model
Rating Median PD(%)
KR1KR2KR3
•••
KR15
0.100.300.60
•••
30.0
Credit Risk Management
• Credit rating system (for individual approach)
29
Internal auditors (No. of staffs) : 24 (1.1% of total employees)
Major roles : Monitoring working procedure and operational risk management
Policy PlanningStage
Post Man-agement
Guarantee Evaluation
Policy monitor-ing and auditing
Cyber audit &Early warning
system
Overall audit in-spectionAuditing
WorkingProcess
Transparent working process & minimized opera-tional risk
Operational Risk Management
• Strong Internal Audit Unit
• Auditing by Working Process
Performance EvaluationIV
31
Evaluation Criteria
Financial Sustainability
Outreach
Additionality
Balance&
Trade-off
• Capital adequacy ratio, macro-economic roles, etc.
The degree of guarantee penetration measured by total amount or number of customers
Definition
(Outstanding guarantees / Outstanding SME loans *100%) : Outstanding guarantee: 40 billion, Outstanding loans to SMEs: 474 billion → 8.4%
(Guaranteed customers / Total SMEs *100%) : Guaranteed Companies: 216 thousand, Total SMEs: 3,419 thousand → 6.3 %
(Outstanding guarantees / GDP * 100%) : Outstanding guarantee: 40 billion, Nominal GDP: 1,410 billion → 2.9%
Measurement
Outreach
32
2008 2009 2010 2011 2012 2013 2014 billion USD
5 billion USD
10 billion USD
15 billion USD
20 billion USD
25 billion USD
30 billion USD
35 billion USD
40 billion USD
45 billion USD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
28.8
38.5 39.1 38.6 39.3 40.0 39.8
7.5%
9.5% 9.8% 9.3% 9.4% 9.0% 8.4%
Outstanding Guarantees
(Outstanding guarantees / Outstanding SME loans *100%)
2008 2009 2010 2011 2012 2013 2014 billion USD
5 billion USD
10 billion USD
15 billion USD
20 billion USD
25 billion USD
30 billion USD
35 billion USD
40 billion USD
45 billion USD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
28.8
38.5 39.1 38.6 39.3 40.0 39.8
2.9% 3.7% 3.4% 3.2% 3.1% 3.1% 2.9%
Outstanding Guarantees Ratio to GDP
(Outstanding guarantees / GDP *100%)
Outreach
33
• Calculation : ( Total loan payable – ① Tangible assets that can be used as collateral② ) ÷ Total loan payable①
• Outcome : 63.2% of additional credit was created by CG (10 yr average)
• Calculation : ( Total loan payable – ① Tangible assets that can be used as collateral② ) ÷ Total loan payable①
• Outcome : 63.2% of additional credit was created by CG (10 yr average)
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average
62.8%
60.4% 60.0%
64.0%62.2% 62.2%
63.4%
66.1% 66.0%
63.6% 63.2%
Additional credit or financial benefit created by using credit guarantee
- A key rationale for CGS but no uniform method for measurement
Definition
Additional Credit by CG of KODIT
Financial Additionality
34
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average
5.1%p 4.6%p
3.8%p 3.4%p
2.9%p 2.4%p 2.6%p 2.4%p 2.2%p 2.2%p
3.1%p
SMEs can enjoy lower interest rate compared with the rate charged by market principles
Lower interest rate by CG of Korea
Financial Additionality (2)
35
• Calculation : Interest rate of credit loan – ( Interest rate of guaranteed loan + Guarantee fee rate)① ② ③
• Outcome : Average interest rate benefit was 3.1%p (10 yr average)
• Calculation : Interest rate of credit loan – ( Interest rate of guaranteed loan + Guarantee fee rate)① ② ③
• Outcome : Average interest rate benefit was 3.1%p (10 yr average)
36
Economic Additionality
• USD 1 million of new CG create 5.4 of new job
• 1% increase of CG generate - corporate tax : 0.40% increase - value added tax : 0.32% increase - income tax : 0.13% increase
Job creation
Tax increase
Economic impact or welfare generated by CG (indirect effect)
① increase in sales or profit, ② job creation, ③ increase in tax payment, etc. * Hard to measure because research should be based on counterfactual reasoning
Definition
• New CG created extra value-added of USD 2.4 billion (2013) Value added
Examples of economic additionality of CG in Korea
• In general, guarantee user groups have shown better performance than non-user groups
Performance improvement
The degree of long-term financial self-sustainability (without government assistance) - Balance between cash inflow and outflow
* Inflow : bank contribution, guarantee fee, reinvestment income ** Outflow : net-claim payment, administrative cost
Definition
2005 2006 2007 2008 2009 2010 2011 2012 2013
51.0%
90.2% 114.6% 111.6%
136.0% 118.1% 119.8%
101.3% 96.6%
Decrease in rein-
vestment income
Financial Sustainability
• Calculation : Cash inflow ÷ Cash outflow
* If the outcome is equal or bigger than 100%, KODIT is financially self-sustainable
• Calculation : Cash inflow ÷ Cash outflow
* If the outcome is equal or bigger than 100%, KODIT is financially self-sustainable
Financial sustainability of KODIT
37
38
Financial Sustainability (2)
(Unit : billion USD) (Unit :
times)
2010 2011 2012 2013 20140.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
43.0 41.4 41.3
43.1 44.0
7.3 6.9 7.2 8.0 8.5
Outstanding Guarantees Capital Fund
Leverage Ratio (O/C)
(1 USD = 1,100 KRW)
5.2
• Leverage ratio (Multiples)
39
Financial Sustainability (3)
• Outcome of credit risk management (consistent de-fault rate)
CG provide capital relief benefit for banks under new Basel Accords
* Conditions of guarantee to fulfill Basel requirement
① irrevocable payment, ② unconditional payment, ③ explicit & documented obligation
** BIS Capital Adequacy Ratio = Equity/ Risk weighted assets * 100%
Definition
BIS Capital Adequacy Ratio
CAR with CG (a) CAR w/o CG (b) Effect (a-b)
14.10% 13.81% 0.29%p
Improvement of Capital Adequacy Ratio by CG of KODIT (2013)
Banks can supply additional credit in the market w/o input of capital
40
41
'83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
-5%
0%
5%
10%
15%
20%
25%
-20%
0%
20%
40%
60%
80%
100%Asian Financial Crisis
Burst of IT Bubble &
Credit Crunch
Global Finan-cial Crisis
GDP Growth Rate
Credit GuaranteeGrowth Rate
Source: Bank of Korea, KODIT
Macroeconomic Policy
• Counter-cyclical tool
42
Closing remarks
• Each country has to develop CGS along with its economic development
stage. In addition, it should also consider its own social, cultural and le-
gal circumstances.
• There is no one-size-fits-all credit guarantee scheme. So do evaluation cri-
teria.
• However, there are common and core criteria. Balance and trade-off
among outreach, additionality and financial sustainability.
• Nowadays, CGS of Korea has gotten into a matured stage and faced its
own specific challenges to overcome. There are still many misunderstand-
ings.
• Effort for in-depth performance evaluation and close public relation is crit-
ical.