Kfb Risk Management
Risk Exposure and Risk Management at Korea First Bank
George Allayannis
Darden Graduate School of Business, University of Virginia
World Bank Conference Washington DC, May 2003
KFB’s Overall Performance
Assets have been declining over time from 46,115 to 33,498 (Ex. 1) A large part of the decline in assets is due to the decline in loans from 20,208 (‘96) to 15,025 (‘98), as well as Customers Liabilities on Guarantees [4,475 (‘96) to 1,466 (‘98)] Not surprisingly, Deposits are down from 26,910 (‘96) to 22,478 (‘98) Retained Earnings have declined precipitously from 446,446 (‘96) to (1,914,597) (‘98)
KFB’s Overall Performance
Large decline in stock market price (see Figure 1); significant decline that cannot be explained by decline in Korean market (or the Korean Finance index) during the same period (see Figure 1 and 2) Consolidated net loss increase from (39,511) in ‘96 to (2,731,029) in ‘98 (Ex. 2) Interest expense went up from 2,718,878 in ‘96 to 3,158,489 in ‘98 Other operating expenses shot up as well from 726,742 in ‘96 to 2,932,784 in ‘98 Large decline in interest and dividends on securities for sale from 1,207,088 in ‘96 to 356,054 in ‘98
KFB’s Credit Risk (A)
KFB’s main exposure to business loans In ‘98 KFB has a slightly more diversified loan portfolio (% of total loans in the top 5 industries down to 37.4% from 44.3% in 96) (Ex. 4) In ‘98 KFB has a smaller percent of loans denominated in foreign currency than in ’97 (32.4% vs. 41.2%); FX loans could provide some diversification from Korean market, but at the same time, potential FX risk
KFB’s Credit Risk (B)
However, top industries of KFB’s loan portfolio highly correlated (e.g., correlation between chemicals and textile (construction) 0.95 (0.92); wholesale and construction: 0.97) (Ex. 5) (see also Figure 3) Bad loans and non-performing loans as a percent of credits have increased significantly from 1.2% (6.7%) in 96 to 8.7% (20.4%) in 1998 (Ex. 6) BIS capital ratio significantly
George Allayannis
Darden Graduate School of Business, University of Virginia
World Bank Conference Washington DC, May 2003
KFB’s Overall Performance
Assets have been declining over time from 46,115 to 33,498 (Ex. 1) A large part of the decline in assets is due to the decline in loans from 20,208 (‘96) to 15,025 (‘98), as well as Customers Liabilities on Guarantees [4,475 (‘96) to 1,466 (‘98)] Not surprisingly, Deposits are down from 26,910 (‘96) to 22,478 (‘98) Retained Earnings have declined precipitously from 446,446 (‘96) to (1,914,597) (‘98)
KFB’s Overall Performance
Large decline in stock market price (see Figure 1); significant decline that cannot be explained by decline in Korean market (or the Korean Finance index) during the same period (see Figure 1 and 2) Consolidated net loss increase from (39,511) in ‘96 to (2,731,029) in ‘98 (Ex. 2) Interest expense went up from 2,718,878 in ‘96 to 3,158,489 in ‘98 Other operating expenses shot up as well from 726,742 in ‘96 to 2,932,784 in ‘98 Large decline in interest and dividends on securities for sale from 1,207,088 in ‘96 to 356,054 in ‘98
KFB’s Credit Risk (A)
KFB’s main exposure to business loans In ‘98 KFB has a slightly more diversified loan portfolio (% of total loans in the top 5 industries down to 37.4% from 44.3% in 96) (Ex. 4) In ‘98 KFB has a smaller percent of loans denominated in foreign currency than in ’97 (32.4% vs. 41.2%); FX loans could provide some diversification from Korean market, but at the same time, potential FX risk
KFB’s Credit Risk (B)
However, top industries of KFB’s loan portfolio highly correlated (e.g., correlation between chemicals and textile (construction) 0.95 (0.92); wholesale and construction: 0.97) (Ex. 5) (see also Figure 3) Bad loans and non-performing loans as a percent of credits have increased significantly from 1.2% (6.7%) in 96 to 8.7% (20.4%) in 1998 (Ex. 6) BIS capital ratio significantly