REGULATION

ON

SUPERVISION OF FINANCIAL HOLDING COMPANIES

Regulation on Supervision of Financial Holding Companies

CONTENTS

I.	General Provisions

§1.	Purpose

II.	Authorization for Financial Holding Companies

Section 1. Procedures

§2.	Separation of Authorization Procedures

§3.	Application for Preliminary Authorization

§4.	Opinions of Interested Parties

§5.	Review for Preliminary Authorization

§6.	Waiver of the Preliminary Authorization Procedures

§7.	Application for Authorization

§8.	Authorization

§9.	Supplementary Documents

Section 2. Standards of Authorization

§10.	Standards of Authorization for Incorporation

§11.	Standards of Authorization for Merger

III. Restrictions on the Ownership of Financial Holding Company

Section 1. shareholding in Bank Holding Company

§11-2.	Reporting of Shareholding in Bank Holding Company

§12.	Requirements for the Approval of Holding Shares in Bank Holding Company

§13.	Requirements for the Approval of Conversion Plan by Non Financial

Speciailizing Business Entity

§13-2.	Evaluation of Conversion Plan

Section 2. Supervision of Large Shareholders

§13-3.	Reporting of Credit Extension to Large Shareholders

§13-4.	Reporting of the Acquisition of Stocks Issued by Large Shareholders

§13-5.	Restriction on the Transactions with Large Shareholders

IV.	Management of Financial Holding Companies

§14.	Exceptions to the Securities Investment Restriction

§15.	Exceptions to the Restriction on Credit Exposure

§16.	Report on Exceeding the Credit Extension Limit

§17.	Extension of Grace Period for Violating the Credit Exposure Restriction

§18.	Scope of Credit Extension by a Securities Company

§19.	Equity Capital Calculation

§20.	Limitations on the Acts of Subsidiaries, etc.

§21.	Scopes of Credit Extension

§22.	Standards for Securing Appropriate Collateral

§23.	Standards for Low-Quality Assets

§24.	Standards for Joint Advertising

§24-2.	Private Credit Information Control

V.	Guidance for Sound Management

Section 1. Prudential Management Guidelines

§25.	Prudential Management Ratios

§26.	Asset Classification

§27.	Loan Loss Provisioning Standards

§28.	Equitable Application and Report on Standards for Asset Classification and Loss Provisioning

§29.	Risk Management System

§30.	Risk Management Organization

§31.	Accounting Procedure and Statement of Accounts

§32.	Business Report

§33.	Disclosure of Financial Statements

§34.	Public Disclosure of Management Performance

Section 2. Management Performance Evaluation

§35.	Management Performance Analysis and Evaluation

Section 3. Prompt Corrective Action

§36.	Management Improvement Recommendation

§37.	Management Improvement Request

§38.	Management Improvement Order

§39.	Suspension of Prompt Corrective Action

§40.	Emergency Measures

§41.	Submission and Evaluation of the Management Improvement Plan

§42.	Implementation Period of Management Improvement Plan

Section 4. Due Diligence for the Determination of an Insolvent Financial Institution

§43.	FHCs Subject to Evaluation

§44.	Scope of Evaluation

§45.	Standards of Evaluation

§46.	Evaluation Procedures

Addenda

Enacted on December, 29, 2000. FSC 2000-116

Amended on May, 16, 2001. FSC 2001-31

Amended on July, 3, 2001. FSC 2001-39

Amended on September, 4, 2001. FSC 2001-61

Amended on May, 1, 2002. FSC 2002-19

Amended on September, 23, 2002. FSC 2002-61

CHAPTER I.

GENERAL PROVISIONS

§1. Purpose

The purpose of this Regulation is to prescribe details necessary for the enforcement of pertinent matters related to the supervision of financial holding companies (hereinafter, "FHCs") and their subsidiaries, etc. by the Financial Supervisory Commission (hereinafter, "FSC") under the Financial Holding Company Act (hereinafter, "the Act") and its enforcement decree (hereinafter, "the Decree"), the Act concerning the Structural Improvement of the Financial Industry and its enforcement decree, the Act Concerning the Establishment of Financial Supervisory Organizations and its enforcement decree, and other statutes thereof.

CHAPTER II.

AUTHORIZATION FOR FINANCIAL HOLDING COMPANIES

Section 1.

Procedures

§2. Separation of Authorization Procedures

Procedures of either authorization(s) or approval(s) applicable under any one of the following paragraphs (hereinafter in this Chapter, "authorization") shall be separated into a preliminary procedure prior to authorization designed to review relevant matters in advance and to ensure subsequent procedures (hereinafter, "preliminary authorization") and an authorization procedure.

1. Authorization for the incorporation of a FHC pursuant to Article 3 of the Act;

2. Approval for entry of a subsidiary into the FHC, etc. pursuant to Article 16 of the Act;

3. Authorization for merger pursuant to Article 60 of the Act; and

4. Authorization for merger and transformation of business pursuant to Article 4 of the Act on the Structural Improvement of the Financial Industry.

§3. Application for Preliminary Authorization

Any persons intending to apply for preliminary authorization under Article 2 (hereinafter, "applicants") must submit an application and any accompanying documents to the FSC in compliance with terms mandated by the Governor of the Financial Supervisory Service (hereinafter "the Governor").

§4. Opinions of Interested Parties

(1) The FSC may request persons directly interested in authorization to submit their opinion(s) when necessary for reviewing the application of preliminary authorization, and may hold hearing(s) in the event where such an application seems to have significance for the financial market.

(2) The FSC may notify the applicant of any adverse opinions submitted under paragraph (1) and make them clarify within a certain period of times.

§5. Review for Preliminary Authorization

(1) The Governor shall ascertain the truth of matters in the application for preliminary authorization, and determine whether such matters are based on each specific criteria for authorization under Section 2 of this Chapter and other relevant statutes, while considering the opinions of either interested or non-interested parties, including individuals and institutions.

(2) The Governor may establish and operate a evaluation committee to assess the feasibility of any business plan(s) and may conduct on-site examination(s) for ascertaining the truth of matters on the application materials and for contacting with promoter(s) and management.

(3) The FSC finally approves on the application for preliminary authorization, pursuant to the specific standards of authorization under Section 2 of this Chapter and other relevant statute(s) thereof.

(4) The FSC may impose conditions when granting preliminary authorization, and must notify the applicant in writing in case of rejecting it.

§6. Waiver of the Preliminary Authorization Procedures

In the event where a prompt authorization is necessary for restructuring financial institutions or protecting consumers or where the preliminary authorization process is redundant, the FSC may waive the preliminary authorization procedure.

§7. Application for Authorization

(1) Applicant(s) must submit application(s) for authorization and any accompanying documents to the FSC as mandated by the Governor, after the full performance of - and compliance with the application(s) and any condition(s) at the preliminary authorization procedure.

(2) Any persons intending to become the subsidiaries of FHCs, etc. under Article 18 of the Act must submit registration form(s) and any accompanying documents to the FSC in accordance with terms mandated by the Governor.

§8. Authorization

(1) The FSC approves on the application(s) for authorization in accordance with the specific standards of authorization under Section II of this Chapter and other statutes.

(2) The FSC may impose conditions when granting authorization, and must notify applicant(s) in writing in case of rejecting it.

(3) The FSC may conduct field examination(s) for verifying the performance of - and compliance with the application(s) for preliminary authorization and any condition(s) therein, and the applicant(s) must help the FSC examine thoroughly.

(4) Successful applicant(s) must perform approved business within six months from the date of authorization; however, this time limitation of starting-up business may be flexible depending on individual approval.

(5) Applicant(s) must report to the FSC without any delay on the performance of any condition(s) imposed in conjunction with the preliminary authorization or the authorization.

§9. Supplementary Documents

(1) Where additional information and documents are needed to review for authorization or preliminary authorization, the FSC may require applicant(s) to submit them within a reasonable time.

(2) In the event the application to submit and any documents attached thereto pursuant to Article 12 paragraph (2) and Article 14 paragraph (3) of the Decree (hereinafter, "attached documents") are identical to those already submitted, a note indicating the use of the attached documents to submit for reference purposes may be written. <Added September 23, 2002>

Section 2.

Standards of Authorization

§10. Standards of Authorization for Incorporation

(1) "Standards set by the FSC" under the Appendix Table 1 of Article 5 paragraph (3) of the Decree are set forth in the Appendix Table 1.

(2) "Satisfactory management performance of subsidiaries, etc." under the provision of Article 5 paragraph (4) subparagraph 2 of the Decree means that the overall rating of subsidiaries based on the management performance evaluation under relevant financial statute(s) is second grade or above.

(3) "Satisfactory management performance of FHC, etc. and a company intending to be its new subsidiary. " under Article 13 paragraph (2) subparagraph 2 of the Decree means (i) an overall rating of second grade or above, based on the management performance evaluation of the FHC, its subsidiaries, etc. (hereinafter , "FHC, etc.") pursuant to Article 35 and (ii) an overall rating of second grade or above based on the management performance evaluation under the relevant financial statute(s) applicable to a company intending to be a new subsidiary.

(4) Regardless of paragraphs (2) and (3), management performance may be viewed as satisfactory in the event where the FSC determines that FHCs, etc. may qualify for an overall rating of second grade or above, through increase(s) in capital and divestiture(s) of bad assets despite the recent rating of below second grade.

(5) Management performance of FHCs, subsidiaries, etc. may be viewed satisfactory in cases where the Governor determines that the qualities of finance and management in those companies are close to paragraph (2), (3) even though those companies are not subject to management evaluation at all under relevant financial statutes or those companies do not have any evaluation results as of the date of application for authorization..

§11. Standards of Authorization for Merger

(1) When approving the mergers between FHCs pursuant to Article 60 of the Act, or Article 4 of the Act on the Structural Improvement of the Financial Industry, the FSC must examine whether the investment of main-shareholder requirements in times of approving mergers are satisfied.

(2) "Management Guidelines set by the FSC" under Article 32 paragraph (3) subparagraph 2 of the Decree mean the management guidance ratio pursuant to the provisions of Article 25 paragraph (1) subparagraph 1 of the Decree.

CHAPTER III.

Restrictions on the Ownership of Financial Holding Company

Section 1.

Shareholding in Bank Holding Company

§11-2. Reporting of Shareholding in Bank Holding Company <Added September 23, 2002>

(1) Any person intending to report on the status of, or changes in, holding shares in a bank holding company or shareholding percentage pursuant to Article 6-2 paragraph (2) of the Decree, shall submit to the FSC a report and any attachments thereto as mandated by the Governor.

(2) A bank holding company shall submit to the Governor a report on the status of shareholdings by the top 50 shareholders within one month from the annual regular shareholders meeting in the manner mandated by the Governor.

§12. Requirements for the Approval of Holding Shares in Bank Holding Company <Amended September 23, 2002>

(1) "Standards set by the FSC" under the Appendix Table 2 of Article 6-3 paragraph (1) of the Decree are set forth in the Appendix Table 1-2.

(2) An exclusive banking business operator or a non financial specializing business entity intending to hold (or repurchase) shares in a bank holding company beyond the restrictions stipulated under Article 8 paragraph (3) or Article 8-2 paragraph (2) of the Act, must submit to the FSC application forms and other documents attached thereto for the approval as mandated by the Governor

(3) The FSC must review the application for approval made pursuant to paragraph (2), decide whether it satisfies the requirements under Article 8 paragraphs (5) or Article 8-2 paragraph (2) of the Act, and notify the applicant of the result(s) thereof.

(4) In the event additional materials are necessary in the review process under paragraph (3), the FSC may require applicant(s) to submit any supplementary documents.

(5) The person in receipt of approval pursuant to paragraph (3) shall acquire shares in the bank holding company within 6 months from the date of the approval (unless the FSC mandates otherwise or approves of extension), shall report to the Governor on the acquisition without delay in observance of the procedures mandated by the Governor, and shall notify the bank holding company of the same.

(6) Any person holding shares in excess of the ceiling pursuant to Article 10-2 paragraph (1) of the Act shall submit to the FSC the documents mandated by the Governor and needed for the FSC's review as provided under Article 6-7 within one month from the end of each quarter.

§13. Requirements for the Approval of Conversion Plan by Non Financial Specializing Business Entity <Amended September 23, 2002>

(1) Standards specific to the requirements for the approval of conversion plan pursuant to Article 6-6 paragraph (2) of the Decree shall be as follows.

1. Disposition method and timeframe by non financial institution subject to the disposition shall be detailed;

2. Intent to dispose of the shares issued by the non financial institution subject to the disposition (including the shares held), and originated by the shareholder, must be ascertainable by the agreement to dispose obtained from the Board of Directors and notarized by the notary public;

3. If increase of capital for financial business is planned, size of the increase, timeframe and method, among others, must be detailed; and

4. Disposition of the non financial business and increase of capital for the financial business must not be restricted by relevant statutes and agreements reached by and among the shareholders.

(2) When a non financial specializing business entity intends to obtain an approval for the conversion plan pursuant to Article 8-2 paragraph (3) of the Act, it shall submit to the FSC the application forms and documents attached thereto as mandated by the Governor.

(3) The FSC shall review the application made pursuant to paragraph (2), decide whether it meets the requirements stipulated under Article 6-6 paragraph (1) of the Decree and paragraph (1) hereinabove, and notify the applicant of the results in writing.

(4) The FSC may require the applicant of the submission of any additional documents needed for the review undertaken pursuant to paragraph (3).

(5) A non financial specializing business entity holding shares in a bank holding company in excess of the ceiling prescribed under Article 8-2 paragraph (1) by obtaining approval under paragraph (3), shall submit to the FSC the documents mandated by the Governor and needed for the review of the performance of the conversion plan within one month from the end of each quarter.

§13-2. Evaluation of Conversion Plan <Added September 23, 2002>

(1) The Governor may assign at least two professional organizations to conduct the evaluation of conversion plans with the inclusion of the person(s) applicable under paragraph (2) subparagraph 1 prior to reaching a decision on the approval by the FSC pursuant to Article 13 paragraph (3).

(2) The professional organizations stipulated under paragraph (1) shall qualify under each of the following.

1. Accounting corporation established under the Certified Public Accountant Law; and

2. Credit information agency conducting credit evaluation business in accordance with the Act Concerning the Use and Protection of Credit Information.

(3) Any person applicable under any of the following shall disqualify for assignment as a professional organization stipulated under paragraph (2), unless the Governor provides otherwise.

1. An accounting corporation suspended of business undertaking by The Minister of Economy and Finance in accordance with the Certified Public Accountant Law;

2. An accounting corporation restricted of undertaking audit business in respect of specific business entity by the Securities and Futures Commission in accordance with the Act Concerning the External Auditing of Stock Corporation. This provision shall not apply if the said specific business entity is not a non financial specializing business intending to subject its conversion plan to the evaluation;

3. A person currently rendering services for the non financial specializing business in question or having had rendered services within the past two years;

4. A person suspended of undertaking credit evaluation business by the FSC in connection with the credit evaluation; and

5. A person of standing in special relations to the non financial specializing business in question as stipulated under Article 3 of the Decree.

Section 2.

Supervision of Large Shareholders

§13-3. Reporting of Credit Extension to Large Shareholders <Added September 23, 2002>

(1) A bank holding company, among others, having extended credit to large shareholders in excess of the ceiling stipulated under Article 24-2 paragraph (3) of the Decree, shall report to the FSC on the extension in the manner mandated by the Governor without delay.

(2) "Single transaction" provided under Article 24-2 paragraph (3) of the Decree means a contractual payment in the credit extension agreement context, made for an identical individual or juridical person (whereas for the acquisition of private bonds as provided under Article 24-2 paragraph (4), it means a payment received pursuant to the purchase and sales agreement collectively; hereinafter the same). Where a multiple number of agreements are made for an identical individual or juridical person on the same day, however, the said single transaction shall mean the sum of all contractual payments and, where renewal, reaging, or extension for existing agreement is to proceed, shall mean a new single transaction.

(3) "Other matters prescribed by the FSC" under Article 24-2 paragraph (5) of the Decree means terms of transaction, security type and other special terms of agreement such as use of credit, maturity of credit extended, and interest rate applied depending upon the form of credit. Credits extended to any and all large shareholders shall be disclosed with the inclusion of others extended to each of the identical individuals and juridical persons.

§13-4. Reporting of the Acquisition of Stocks Issued by Large Shareholders <Added September 23, 2002>

(1) In accordance with the latter part of the provisions of Article 45-3 paragraph (1) of the Act, a bank holding company, among others, shall be prohibited from acquiring the stocks issued by large shareholders, but which are not registered in securities markets overseen by the Securities and Exchange Act or any such market overseas in excess of the 5/1000 of its total equity capital.

(2) In the event a bank holding company, among others, acquires the stocks issued by large shareholders in excess of the ceiling stipulated under Article 24-3 paragraph (4) of the Decree, it shall report to the FSC consistently with the manner mandated by the Governor without delay.

(3) "Single transaction" provided under Article 24-3 paragraph (4) of the Decree means an amount of acquisition caused by the act of a single, collective acquisition. Where stocks are acquired by multiple acts of acquisition on the same day, however, it shall mean the sum of all acquisitions.

(4) "Other matters prescribed by the FSC" provided under Article 24-3 paragraph (5) of the Decree means each of the following, which shall be disclosed by the identical juridical person.

1. Purpose of stock acquisition;

2. Current shareholding percentage as of end quarter;

3. Market value vs. acquisition cost; and

4. Stock disposition and yields resulting therefrom if the disposition was executed during the quarter.

§13-5. Restriction on the Transactions with Large Shareholders <Added September 23, 2002>

(1) "Asset classification standards prescribed by the FSC" provided under Article 24-5 paragraph (1) subparagraph 2 of the Decree means the asset quality classification standards stipulated under Article 28 of this Regulation, whereas "where classifying below the standards determined by the FSC" means classifying assets as substandard and below.

(2) Where any of its large shareholders are applicable under any of the subparagraphs of Article 24-5 paragraph (1) of the Decree, the bank holding company shall report to the FSC without delay.

CHAPTER IV.

MANAGEMENT OF FINANCIAL HOLDING COMPANIES

§14. Exceptions to the Securities Investment Restriction

"Other events determined by the FSC" under Article 21 paragraph (1) subparagraph 3 of the Decree corresponds to either one of the following subparagraphs.

1. Mergers between FHCs, or acquisitions of the entire businesses by FHCs; or

2. Execution of security right(s) or the acceptance of accord and satisfaction.

§15. Exceptions to the Restriction on Credit Exposure

"Exceptions permitted by the FSC" under Article 22 paragraph (2) subparagraph 7 of the Decree mean the following subparagraphs.

1. Merger with - or business assignment financial institutions under Article 2 subparagraph 1 of the Act on the Structural Improvement of the Financial Industry;

2. Transformation into other types of financial institutions under Article 2 subparagraph 1 of the Act on the Structural Improvement of the Financial Industry;

3. Occurrences of guarantee payments in subrogation;

4. Increase in the amount of corporate bond guarantees due to the increase in interest rate;

5. Alteration of account titles on the balance sheets of financial institutions; and

6. Alteration of scope for credit extension.

7. Where a person other than large shareholder becomes a new large shareholder of a financial holding company, or where the shareholding percentage of a large shareholder in a financial holding company has declined. <Added September 23, 2002>

§16. Report on Exceeding the Credit Extension Limit

(1) FHCs must submit specific plans under Article 23 paragraph (1) of the Decree to the Governor within one month from the date of exceeding the credit extension limit.

(2) In the event the Governor does not make any notification(s) to the FHCs within one month from the submitting date of plans under paragraph (1), the plans will be regarded as being approved by the FSC.

(3) FHCs must report to the Governor within ten days from the date of exceeding the ceiling stipulated under Article 45, Article 45-2 paragraph (1) (restricted to bank holding companies), and Article 48 paragraph (1) subparagraph 3 of the Act, if it is due to events or circumstances provided under Article 22 of the Decree or Article 15 of this Regulation. <Amended September 23, 2002>

(4) The Governor must report matters regarding the credit extension limit of FHCs, etc. to the FSC every quarter pursuant to paragraph (3).

§17. Extension of Grace Period for Violating the Credit Exposure Restriction

(1) "Cases recognized by the FSC" under Article 23 paragraph (2) subparagraph 3 of the Decree mean those where legal proceedings for collection of debts against borrowers are under way.

(2) When FHCs, etc. intend to extend periods pursuant to Article 45 paragraph (4) of the Act and Article 27 paragraph (2) of the Decree, the periods must be within one year.

§18. Scope of Credit Extension by a Securities Company

"Transactions prescribed by the FSC" under Article 24 paragraph (2) subparagraph 3 of the Decree mean those under Article 21 subparagraph 3.

§19. Equity Capital Calculation

(1) Equity capital of the securities companies under Article 24 paragraph (3) subparagraph 3 of the Decree and that of the subsidiaries under Article 24-3 paragraph (7) subparagraph 2of the Decree shall be calculated based upon the following formula, of which "the end of the latest (provisional) settlement period" under the formula shall be assumed "the end of the last (provisional) settlement period" until the (provisional) settlement of accounts is completed.

Equity capital = [Total assets from the latest (provisional) settlement period] １ [Total liabilities from the latest (provisional) settlement period] +/１ [Changes in capital and capital surplus since the end of the latest (provisional) settlement period] １ [Interim dividends] <Amended September 23, 2002>

(2) [Deleted September 23, 2002]

§20. Limitations on the Acts of Subsidiaries, etc.

"Unavoidable circumstances determined by the FSC" under Article 27 paragraph (2) of the Decree are as following.

1. Credit extension limit under Article 27 paragraph (3) subparagraph 1 of the Decree: when subsidiaries, etc. are subject to liquidation or management rehabilitation in collaboration with other financial institutions.

2. Credit extension limit under Article 27 paragraph (3) subparagraph 2 of the Decree: when credits extended to the subsidiaries, etc. subject to liquidation or management rehabilitation by financial institutions exceeds 50 percent of total credits extended to all the subsidiaries, etc.

§21. Scopes of Credit Extension

"Transactions prescribed by the FSC" under Article 27 paragraph (8) of the Decree mean the following paragraphs.

1. When subsidiaries, etc. are banks: credit extensions under Article 2 paragraph (1) subparagraph 7 of the Banking Act;

2. When subsidiaries, etc. are merchant banks: credit extensions under Article 2 subparagraph 4 of the Merchant Banking Corporation Act

3. When subsidiaries, etc. are securities companies: accommodation papers, loans, sales of bonds with private placement, payments in subrogation and dishonored bonds (private placement corporate bonds) and dishonored bills on the balance sheet.

4. When subsidiaries, etc. are insurance companies: loans and purchase of corporate papers on the balance sheet;

5. When subsidiaries, etc. are credit-extension specialized financial companies: credit extensions under Article 50 paragraph (1) of the Credit-Extension Specialized Financial Business Act;

6. When subsidiaries, etc. are mutual savings and finance companies: loans under the provisions of Article 2 paragraph (4) subparagraph 3 of the Mutual Savings and Finance Company Act; and

7. Other subsidiaries : transaction(s) applicable under subparagraph 1 or 6 hereinabove following the consideration(s) of the business(es) conducted by the applicable subsidiaries, etc.

§22. Standards for Securing Appropriate Collateral

(1) "Ratio determined by the FSC by types of collateral" means the ratio in each of the following subparagraphs.

1. Deposits and installment savings, credits against the Government or the Bank of Korea, credits guaranteed by the Government or the Bank of Korea, credits secured by the securities issued or guaranteed by the Government or the Bank of Korea: 100/100

2. (i) Credits against local governments under the Local Autonomy Act, local public enterprises under the Local Public Enterprises Act (restricted only to those qualified to benefit from the Government or local governments in order to preserve their losses), and investment institutions and other quasi-investment institutions under the Basic Act on the Management of Government-Invested Institution (hereinafter, "public institutions and others"); (ii) credits with guarantee from public institutions, and; (iii) credits secured by the outstanding securities of public institutions and others: 110/100

3. Assets other than those under subparagraphs 1 and 2: 130/100

(2) "Case(s) that satisfy the requirements set forth by the FSC, such as credit extension(s) necessary for the restructuring of subsidiaries, etc." mean each of the following subparagraphs.

1. Credits held by subsidiaries, etc. prior to being subsidiaries, etc. of FHCs. Such subsidiaries, etc, however, must satisfy the requirements for securing appropriate collaterals pursuant to paragraph (1) within two years from either the date of authorization for the incorporations of FHCs, or approval date as subsidiaries, etc. ;

2. Temporary credit extensions against secured-assets under collection;

3. Short-term financial transaction(s) with conventional terms made by financial intermediaries established by Article 9 of the Merchant Banking Company Act;

4. Simple intermediation for transaction(s) between creditor(s) and debtor(s) for fixed fee(s); and

5. Credit extensions of subsidiaries to financial institution(s), more than 80 percent of whose voting shares are held by the subsidiaries

6. Overdrafts below average level extended under terms to be repaid within a day.

7. Credit extentions to corporate restructing vehicles (hereinafter, "CRVs") under the Corporate Restructing Vehicle Act.

8. Temporary credit extended within an arm's length pursuant to trust agreement reached for the settlement of payment and accounts in connection with the use of credit card. <Added September 23, 2002>

(3) If the value of collateral(s) decreases due to reasons such as depreciation and physical damage(s) of assets and decrease(s) in market value under paragraph (1), comparing with the value originally offered, additional collateral(s) must be secured for the satisfaction of the standards under paragraph (1) within one month from the date of value-decrease. The Governor may, however, extend the period for securing such additional collateral(s) in the following subparagraphs.

1. Change(s) in the scope of credit extension; and

2. Insufficiency of collateral arising from unavoidable reasons, such as drastic change(s) in economic condition(s) with no default(s) on the financial institution(s);

(4) Notwithstanding paragraph (1), assets under the following subparagraphs may not be regarded as appropriate collaterals.

1. Assets applicable under Article 23 paragraph (1); and

2. Credits against FHCs, etc, credits guaranteed by FHCs, etc. and credits secured by the securities of FHCs, etc.

§23. Standards for Low-Quality Assets

(1) "Assets determined by the FSC" under Article 27 paragraph (5) of the Decree mean those classified as "precautionary" or below under the asset classification standards, which are applicable to subsidiaries, etc.

(2) Article 26 will be applied to subsidiaries, etc. having no applicable asset classification standards under paragraph (1).

(3) "Case(s) that satisfy the requirements set forth by the Financial Supervisory Commission" under Article 48 paragraph (3) of the Act mean(s) those applicable under one of the following subparagraphs..

1. Where a trust company or a company specialized in securitization under the Act on the Asset Backed Securitization acquires low-quality assets through transfers or trust from other subsidiaries, etc. in order to issue asset-backed securities; and

2. Where a company specialized in mortgage-backed securitization under the Mortgage-Backed Securitization Company Act acquires low-quality assets through transfers or trust from other subsidiaries, etc. in order to issue mortgage-backed secured bonds or mortgage-backed securities

3. Where other subsidiaries, etc. invest low-quality assets in kind or assign them to CRVs.

§24. Standards for Joint-Advertising

Joint advertising of FHCs, etc. pursuant to Article 27 paragraph (6) of the Decree must expressly include each of the following paragraphs to the effect that any confusion is avoided for the convenience and safety of the depositors (contracting parties) or the investors.

1. Information of whether subsidiaries, etc. are insured financial institutions under the Depositors Protection Act;

2. Fact that FHCs or subsidiaries, etc. do not guarantee any liabilities of subsidiaries, etc. unless there is a lawful contract clause to guarantee; and

3. Matters required for posting under other relevant statute(s).

§24-2. Private Credit Information Control <Added September 23, 2002>

(1) Work instructions provided under Article 48-2 paragraph (5) of the Act shall include each of the following.

1. Purpose of providing private credit information, among others;

2. Restrictions on the use of private credit information to extend unreasonable benefits to specific clients;

3. Types of private credit information, among others, that is available among financial holding companies;

4. Tradenames of the financial holding companies providing and reviewing private credit information;

5. Work procedures for providing private credit information among financial holding companies, among others;

6. Security measures for private credit information, among others;

7. Rights and obligations of the credit information manager;

8. Disciplination standards and procedures for violators of the work instructions; and

9. Public announcement or notification method for the handling instructions of private credit information.

(2) The financial holding companies' subsidiaries shall develop and operate work instructions in accordance with the guidelines of the financial holding companies unless there exists any special circumstance.

(3) When financial holding companies, among others, are developing or amending work instructions, they shall obtain an approval from their Board of Directors and report to the FSC within two weeks therefrom. When so doing, they may report by summarizing all developed and amended information including that of the subsidiaries.

(4) The information handling instructions provided under Article 27-2 paragraph (1) of the Decree shall include each of the following.

1. Tradenames of, and businesses conducted by, financial holding companies, among others;

2. Tradename of, and businesses conducted by, the financial holding companies providing private credit information;

3. Purpose of providing private credit information;

4. Types of the private credit information provided;

5, Security measures for private credit information, among others;

6. Legal basis for providing private credit information; and

7. Venues for recovering damages and injuries caused against clients as a result of financial holding companies, among others, unlawfully providing private credit information.

CHAPTER V.

GUIDANCE FOR SOUND MANAGEMENT

Section 1.

Prudential Management Guidelines

§25. Prudential Management Ratios

(1) FHCs must maintain the prudential management ratio under each of the following subparagraphs pursuant to Article 50 of the Act and Article 28 of the Decree.

1. Ratio of net aggregated amounts of the equity capital to aggregate amounts of the requisite capital (equity capital required under financial statute(s) against a financial institution to meet capital adequacy standards; in the absence of such capital adequacy standards under financial statute(s), the Governor's mandates will be applied) (hereinafter, "ratio of the equity capital to the requisite capital) : over 100/100.

2. Ratio of FHCs' liquid assets denominated in the Korean currency (hereinafter, "won") to liquid liabilities denominated in won (hereinafter, "the liquidity ratio in won"): over 100/100.

3. Ratios related to FHCs' liquidity in foreign currency

a. Ratio of FHCs' liquid assets in foreign currency to liquid liabilities in foreign currency (hereinafter, "the liquidity ratio in foreign currency") : over 80/100

b. Ratios of maturity mismatch between the assets and liabilities in foreign currency

[1] Ratio of assets exceeding liabilities, when the maturity is due less than seven days: over 0/100

[2] Ratio of liabilities exceeding assets, when the maturity is less than one month: below 10/100

(2) The Governor determines detailed criteria on the calculation of ratios under paragraph (1). Standards developed by international financial regulatory organizations, such as the Bank for International Settlements, will be reflected when calculating aggregate amounts of the requisite capital and net aggregate amounts of the equity capital under paragraph (1) subparagraph 1.

(3) FHCs must calculate the prudential management ratios pursuant to paragraph (1) and report to the Governor the results thereof on a quarterly basis.

(4) When determining that there exist(s) any cause(s) for the deterioration of the prudential management ratios under paragraph (1) or management weakness in the analysis and evaluation of the management performance pursuant to Article 35, the Governor may require the FHCs concerned to submit plan(s) or agreement(s) for management improvement, or may conclude memoranda of understanding on management improvement with the FHCs. This, however, shall not apply to cases where any FHCs are subject to the management improvement recommendation, management improvement request, or management improvement order pursuant to Article 36 through 38 of this Regulation.

§26. Asset Classification

(1) A FHC must classify its assets on a regular basis into the five categories of "normal," "precautionary," "substandard," "doubtful," and "estimated loss," while taking into consideration the borrower's debt servicing capability and the nature and contents of the financial transaction(s) undertaken, for which it must accumulate and maintain adequate loss provisioning (which includes allowances for payment guarantees; hereinafter as such).

(2) Assets under paragraph (1) mean those under the following subparagraphs.

1. Loans, as defined under Article 31 paragraph (1) of the Accounting Procedures for Financial Holding Companies (hereinafter, 'loans');

2. Acceptances and guarantees, of which the principal liabilities have been determined (hereinafter, 'principal payment guarantees');

3. Securities;

4. Prepayments, accounts receivables, and earnings deferred; and

5. Any other assets recognized by a FHC as necessary for classification

(3) For the purpose of asset classifications and loss provisioning pursuant to paragraph (1), a FHC must determine standards for asset classification and provisioning including the evaluation standards for the debtor's capacity to repay debts based on the standards set forth in <Appendix Table 2> and Article 27.

(4) A FHC must report to the Governor every quarter on the standards determined under paragraph (3), including the results thereof .

(5) The Governor may check adequacy of standards and require the corrections thereof when determining inadequacy of the asset classification and loss provisioning by a FHC.

(6) A FHC must maintain asset soundness by disposing in advance of the assets classified as 'doubtful' or 'estimated losses' pursuant to paragraph (1) (hereinafter "bad assets").

§27. Loan Loss Provisioning Standards

Standards for loan loss provisioning by a FHC are as follows.

1. A FHC must accumulate the following amounts for provisioning against assets under Article 26 paragraph (2) subparagraphs 1, 4 and 5, in accordance with the results from classifications during the period of settlement of accounts (as well as quarterly provisional settlements; applied as such in this Article).

a. Over 0.5/100 of the assets classified as 'normal';

b. Over 2/100 of the assets classified as 'precautionary';

c. Over 20/100 of the assets classified as 'substandard';

d. Over 50/100 of the assets classified as 'doubtful'; and

e. 100/100 of the assets classified as 'estimated losses.'

2. Notwithstanding subparagraph 1, loss provisioning may not be accumulated in cases where call loans and the purchases of bonds under repurchase agreements are classified as 'normal.'

3. A FHC, concerning the principal payment guarantee at the present date of accounts settlement, must accumulate the amounts set forth in the following subparagraphs as the payment guarantee reserves based upon the results of the asset classifications.

a. Over 20/100 of the principal payment guarantees classified as 'substandard';

b. Over 50/100 of the principal payment guarantees classified as 'doubtful'; and

c. 100/100 of the principal payment guarantees classified as 'estimated loss.'

§28. Equitable Application and Report on Standards for Asset Classification and Loss Provisioning

(1) A FHC must make its subsidiaries, etc. establish and enforce standards for asset classification and loss provisioning pursuant to Article 26 paragraph (3), or any other standards equivalent thereto, unless there are such justifications as including, but not limited to, compliance by its subsidiaries, etc. with separate standards of asset classification and loss provisioning under relevant financial statute(s).

(2) A FHC must report to the Governor every quarter on the comprehensive results of the asset classifications and loss provisioning for itself and its subsidiaries, etc.

(3) The Governor shall examine feasibility of the asset classification and loss provisioning for subsidiaries, etc. and, if unreasonable, may require corrections thereof.

§29. Risk Management System

(1) A FHC must have in place a system for identifying, measuring, monitoring, and controlling various risks against all the activities of its own, subsidiaries, etc.

(2) A FHC must, for the effective risk management, set up adequate risk limit and credit limit on every subsidiary, department, transaction or person in charge.

(3) A FHC must measure and manage various risks that may arise from transactions, including credit risk, market risk, and liquidity risk.

(4) A FHC must recognize and monitor developments of the major risks in concert with its subsidiaries, etc.

§30. Risk Management Organization

The board of directors of a FHC must deliberate and decide on each of the following subparagraphs concerning the risk management. If necessary for the efficient risk management, however, the board of directors may establish an ad hoc committee within the board of directors for the sole purposes of risk management.

1. Establishing basic guidelines for risk management in line with management strategies;

2. Determining levels of acceptable risks for each financial institution;

3. Approving appropriate limit for investment or acceptable limit for loss; and

4. Enacting and amending risk management guidelines.

§31. Accounting Procedure and Statement of Accounts

(1) A FHC must comply with the Corporate Accounting Standards and the Accounting Procedures for Financial Holding Companies established by the Korea Accounting Institute in accounting and drafting financial statements.

(2) The Governor may prescribe specific standards necessary for getting the report of accounts settlement from - and enforcing prudential regulation against a FHC within the scope of the Financial Accounting Standards and the Accounting Procedures for Financial Holding Companies under paragraph (1).

(3) A FHC must submit to the Governor a report on settlement of accounts within three months from the closing date of each financial year while meeting the requirements of the Governor.

§32. Business Report [Deleted]

§33. Disclosure of Financial Statements

(1) [Deleted]

(2) When intending to delay the timetable of disclosure under Article 55 of the Act, a FHC must submit documents such as type(s) of financial statements, duration(s) and reason(s) of delay within two months from the date of settlement of accounts, and get approval from the FSC.

§34. Public Disclosure of Management Performance

(1) Pursuant to Article 56 of the Act, a FHC must disclose matters of each subparagraph under Article 31 paragraph (1) of the Decree within three months from the closing date of each financial year.

(2) "Matters determined necessary by the FHC for the protection of depositors and investors" under Article 31 paragraph (1) subparagraph 4 of the Decree mean matters under the following subparagraphs.

1. Management guidelines, plans, and strategies of FHCs, etc. ;

2. Management performance results of FHCs, etc.;

3. Risk management policies and methods, and internal controls of FHCs;

4. Insider tradings between FHCs and person(s) (as defined under the provisions of Article 45 paragraph 3 of the Act) holding voting shares in excess of 10 percent of the total outstanding shares of the FHCs, parties to be regulated in connection with such insider tradings, and policies for the regulation thereof;

5. Ownership and governance structure of a FHC, etc. ; and

6. Gift-endowments of a FHC, etc.

(3) A FHC shall publicly disclose the relevant contents, in the event the soundness of its management either has been damaged or likely to be damaged due to cases applicable under any of the following subparagraphs.

1. Where bad loans, financial accidents, or other events arise; and

2. When such measures as the management improvement recommendation from the FSC or the Governor are taken.

(4) In the event a FHC cross-sells financial products and jointly operate branches and any other business facilities, such a FHC must disclose to their customers the roles and responsibilities of the financial institutions concerned and their positions with regulatory authorities, through such media as disclosure materials, marketing brochures, and bulletin boards and any other fixtures of notification within their branches with convenience and clarity.

(5) The Governor determines the specifics, contents and other methods for the public disclosure under paragraph (1) through (3).

(6) In the event a FHC makes an insincere public disclosure, such as a false disclosure of matters under paragraph (1) through (4), and an omission of important matters, the Governor may demand such a FHC to correct or to make another public disclosure.

Section 2.

Management Performance Evaluation

§35. Management Performance Analysis and Evaluation

(1) The Governor must supervise the soundness of management through the analysis of management performance by a FHC, etc.

(2) The Governor may evaluate management performance through the examination(s) of a FHC, etc., and reflect the results thereof in his supervisory and examination functions..

(3) The ratings of evaluation under paragraph (2) shall be classified into five grades: first grade (strong), second grade (satisfactory), third grade (less than satisfactory), fourth grade (deficient), and fifth grade (critically deficient).

(4) The management performance evaluation(s) under paragraph (2) must be undertaken against institution(s) on the examination date with the results of separate evaluating subparagraphs, that is "leading subsidiaries," "any other subsidiaries (excluding such subsidiaries as engaged in non-financial business)," "FHC," "profitability (consolidation criterion)," "capital adequacy (consolidation criterion)," and "business management capacity." In addition, comprehensive evaluation(s) shall be undertaken based upon either the evaluation results by item or overall financial conditions of the institutions evaluated. However, in cases where evaluation criteria for "any other subsidiaries" are not established under relevant financial statutes and the effectiveness of such an evaluation is not recognized as necessary, an exemption of evaluation may be made for this item.

(5) Leading subsidiaries under paragraph (4) mean subsidiaries engaging in the largest part of FHC's businesses (based on the size of business assets while excluding assets in the trust accounts, and in case more than two subsidiaries conducting same business, the assets of those subsidiaries are consolidated all together). When determining leading subsidiaries, such criteria as, but not limited to, business goals, management strategies, and scope of business operation of a FHC and its subsidiaries, etc. will be taken into consideration. In case of a bank holding company, however, its banking subsidiaries shall be the leading subsidiaries.

(6) The details for the evaluation of management performance pursuant to paragraph (2) shall be determined by the Governor.

Section 3.

Prompt Corrective Action

§36. Management Improvement Recommendation

(1) In the event a FHC is under any one of the following subparagraphs, the Governor must recommend such a FHC to take necessary measures.

1. When the ratio of equity capital to the requisite capital falls under 100/100;

2. When the overall rating is third grade or higher but the evaluation item of "FHC" or "capital adequacy" is fourth grade (deficient) or lower as a result of the evaluation of management performance pursuant to Article 35; and

3. When a FHC is obviously adjudged to be below the standards under subparagraph 1 or 2 due to serious financial accidents or non-performing loans.

(2) Necessary measures under paragraph (1) mean all or parts of measures under the following subparagraphs.

1. Improvement in personnel management and organizational operation;

2. Cost reduction;

3. Purchase of fixed assets and restriction of new business expansion;

4. Restriction on investment in new subsidiaries, etc. ;

5. Disposal of bad assets;

6. Increase in, or reduction of paid- in capital;

7. Restriction on distribution of dividends; and

8. Arrangements of special loan loss provisioning.

(3) When making recommendation(s) pursuant to paragraph (1), the Governor may issue a letter of "precaution" or "warning" against a FHC or executive officer(s) related thereof.

§37. Management Improvement Requirement

(1) In the event a FHC is under any one of the following subparagraphs, the FSC must require the FHC to take necessary measures.

1. When the ratio of equity capital to the requisite capital falls under 75/100;

2. When the overall rating is fourth grade (deficient) or less as a result of the evaluation of management performance pursuant to Article 35;

3. When a FHC is obviously adjudged to be below the standards under subparagraph 1 or 2 due to serious financial accidents or non-performing loans; and

4. When a FHC subject to the management improvement recommendation pursuant to Article 36 paragraph (1) does not faithfully carry out its management improvement plans.

(2) Necessary measures under paragraph (1) mean all or parts of measures under the following subparagraphs.

1. Downsizing of organization;

2. Restriction on holding of risky assets and disposal of assets;

3. Requiring replacement of executive officer(s);

4. Partial suspension of business operation;

5. Divestitures of subsidiaries, etc. ;

6. Drafting plan(s) for merger, third-party takeover, or transfer of business entirely or partially; and

7. Matters under Article 36 paragraph (2).

§38. Management Improvement Order

(1) In the event a FHC is under any one of the following subparagraphs, the FSC must order the FHC to take necessary measures.

1. Ailing financial institutions under Article 2 subparagraph 3 of the Act on the Structural Improvement of the Financial Industry;

2. When the ratio of equity capital to the requisite capital falls under 25/100 ; and

3. When the normal operation of a FHC already subject to the management improvement requirement pursuant to Article 37 paragraph (1) seems to be in serious difficulties because such a FHC does not, or can hardly, implement material matters of its management improvement plan and because the FHC has failed to implement them even though urged to do under Article 41 paragraph (6).

(2) Necessary measures under paragraph (1) mean all or parts of measures under the following subparagraphs. However, such measures as "suspension of entire business operation," "transfer of entire business operation," "transfer of entire contracts," or "divestiture of entire shares" shall be applicable to the extent that a FHC is declared as an insolvent financial institution under paragraph (1) subparagraph 1, or when it is adjudged to have failed to meet the standards prescribed under paragraph (1) subparagraph 2, wherein the underperformance of such a FHC is considered to be detrimental to the maintenance of a sound credit system.

1. Retirements of all or parts of the outstanding stocks;

2. Suspension of duties against executive officers and appointment of administrator (s);

3. Merger;

4. Full or partial transfer of business operation;

5. Third-party takeover of the FHC;

6. Suspension of business operation for less than six months;

7. Full or partial transfer of contracts; and

8. Matters under Article 37 paragraph (2).

(3) Notwithstanding paragraph (1), the FSC may order to increase or decrease its capital against a FHC already subject to the management improvement recommendation under Article 36 paragraph (1) or management improvement requirement under Article 37 paragraph (1), for which the Government or the Korea Deposit Insurance Corporation decides to make capital investments because such a FHC seems not able to normally conduct businesses without the support of outside funds..

§39. Suspension of Prompt Corrective Action

(1) The Governor may suspend the prompt corrective actions against a FHC qualifying under any one of the subparagraphs, Article 36 paragraph (1) in the event such a FHC is adjudged to be capable of meeting standards through such means as increase(s) in capital or asset divestiture(s) to the substantial certainty or within a short period of time.

(2) In the event a FHC qualifying under Article 37 paragraph (1) and each of the subparagraphs of Article 38 paragraph (1) is adjudged to be capable of meeting standards through such means as increase(s) in capital or asset divestiture(s) to the substantial certainty or within a short period of time, etc., the FSC may suspend the prompt corrective actions.

§40. Emergency Measures

(1) The FSC may, when recognizing that a FHC under one of the following subparagraphs may seriously risk the sound credit system, take emergency measures for removing the risk. However, in the event being unable to convene the FSC, its Chairman (hereinafter, "Chairman") may first take measures immediate and necessary, an then report to the details of measures by convening the FSC without delay.

1. Where normal business operation is impossible or difficult because of unexpected events resulting from, but not limited to, the suspension of work or business; and

2. Where bankruptcy or default on repayments is imminent.

(2) Emergency measures under paragraph (1) mean all or parts of measures under the following subparagraphs.

1. Prohibition of debt servicing act(s);

2. Prohibition of credit extension(s) to subsidiaries, etc. ;

3. Prohibition of act(s) of issuing corporate bonds and borrowing funds; and

4. Disposal of assets.

§41. Submission and Evaluation of the Management Improvement Plan

(1) A FHC subject to the management improvement recommendation, management improvement requirement, and management improvement order pursuant to Article 36 through 38 must submit its plan (hereinafter, "management improvement plan") consistent with relevant measures, to the Governor in case of management improvement recommendation or to the FSC in case of management improvement requirement and management improvement order, within a timeframe prescribed by the authority but less than two months,

(2) Approval decision(s) on the plan(s) submitted pursuant to the provisions of Article 36 paragraph (1) shall be made by the Governor, whereas approval decision(s) on the plan(s) submitted pursuant to the provisions of Article 37 paragraph (1) and Article 38 paragraph (1) shall be made by the FSC within one month from the date of successful submission. If deliberation of the Management Assessment Committee pursuant to paragraph (3) is delayed, however, approval decision(s) may go beyond not exceeding fifteen days.

(3) For issuance of a management improvement recommendation, requirement, or order pursuant to Article 28 through Article 30, the Governor shall receive a review of the Management Assessment Committee comprised of independent professionals in advance prior to making approval decision(s) pursuant to the provisions of paragraph (2). This, however, shall not apply in the event of emergency or deliberation deemed unnecessary by the Governor.

(4) In the event a plan submitted by a FHC pursuant to Article 36 paragraph (1) fails to prove feasible, the Governor must disapprove it. In this case, the FSC must require all or parts of the measures under Article 37 paragraph (2) and finally decide whether it approves or not after making the FHC submit the plan reflecting the contents of measures concerned within a specified time period.

(5) In the event a plan submitted by a FHC pursuant to paragraph (4) or Article 37 paragraph (1) fails to prove feasible, the FSC must disapprove it. In this case, the FSC must require all or parts of the measures under Article 37 paragraph (2) and require the FHC to submit the plan reflecting the contents of measures concerned within a specified time period. In addition, the FSC may, if feasibility is not recognized in the plan, demand or order all or parts of measures under Article 38 paragraph (2) to be implemented.

(6) A FHC, which has obtained the approval of a management improvement plan pursuant to paragraph (2), must submit the quarterly implementation results of its plan to the Governor by the tenth day of the following month after the end of each quarter. When adjudging the result of its plan is insufficient or inadequate due to the changes of the related system or as such, the Governor may take necessary measures such as the correction of a management improvement plan, prompt performance within a limited time period.

(7) In the event ordering corrections of important matters in the management improvement plan which has been submitted by a FHC subject to the management improvement requirement, or urging to implement them within a specified period of time, the Governor must report in priori on details to the FSC.

(8) Paragraph (2) through (5) may apply when a FHC revises and submits its management improvement plan pursuant to paragraph (6).

(9) The Governor shall determine specific matters pertaining to the organization and operation of the Management Assessment Committee under paragraph (3).

§42. Implementation Period of Management Improvement Plan

(1) The period for implementing the management improvement plan by a FHC subject to the management improvement recommendation under Article 36 shall be within one year from the approval date.

(2) The period for implementing the management improvement plan by a FHC subject to the management improvement requirement under Article 37 shall be within one year and six months from the approval date. In this case where the FHC subject to the management improvement recommendation under Article 36 receives the management improvement requirement in the course of implementing the plan, the period shall be counted within one year and six months from the date on which the management improvement plan for such recommendation is approved.

(3) In the event where a FHC is urged by the Governor to implement the plan within a specified period of time pursuant to Article 41 paragraph (6), the period mentioned in paragraph (2) may be exceeded. However, the exceeding period must be within the period set forth in paragraph (1) or (2).

(4) In the event a FHC subject to the management improvement recommendation, requirement, or order pursuant to Articles 36 through 38 makes a substantial improvement in its management through an early achievement of the important matters in its management improvement plan, including increase of capital, resolution of bad credits, etc., the proper authority may alleviate corrective actions or exempt the implementation thereof.

(5) When recognizing that a FHC subject to the management improvement recommendation, requirement, or order pursuant to Articles 36 through 38 has made a sufficient improvement in its management conditions after the expiration of the implementation period of the management improvement plan, the proper authority must notify such a FHC of the completion of the measures concerned. In the event its management conditions fall under Article 36 paragraph (1), Article 37 paragraph (1) or Article 38 paragraph (1), the proper authority must take an additional measure such as management improvement recommendation, requirement, or order in accordance with the same articles.

Section 4.

Due Diligence for the Determination of an Insolvent Financial Institution

§43. FHCs Subject to Evaluation

A FHC whose assets and liabilities are subject to evaluation and calculation with a view to determining ailing financial institutions pursuant to Article 2 subparagraph 3 of the Act on the Structural Improvement of the Financial Industry shall be under any one of the following paragraphs.

1. A FHC whose asset soundness has drastically deteriorated due to the occurrences of serious financial accidents or large bad loans and which the Governor adjudges that its liabilities may exceed its assets;

2. A FHC whose ratio of equity capital to the requisite capital falls under 50/100 ; and

3. A FHC which is rated as fifth grade (critically deficient) in the categories of evaluation by the Governor as a result of the evaluation of management performance pursuant to Article 35.

§44. Scope of Evaluation

In principle, each account title of assets and liabilities on the balance sheet of a FHC at the end of the latest month shall be valued and calculated pursuant to Article 43. However, reserves for adjusting asset values (referring to loan loss provisioning, reserves for depreciation, other allowances) shall be excluded from the valuation and calculation.

§45. Standards of Evaluation

(1) The assets, liabilities, and footings subject to valuation and calculation pursuant to Article 43 shall be valued in accordance with the criteria under the following subparagraphs.

1. items whose book value reflects the real value shall be valued at such book value;

2. items whose book value does not reflect the real value shall be valued at the market value or by adjusting the book value to the real value after discounting the estimated loss; and

3. Footings shall be counted as liabilities through calculation of the estimated loss.

(2) The detailed criteria on the valuation and calculation of each item in assets, liabilities, and footings pursuant to paragraph (1) shall be determined by the Governor.

§46. Evaluation Procedures

(1) The Governor may demand the FHC subject to valuation should submit the materials necessary for the valuation and calculation of its assets and liabilities, and may conduct on-site inspection of its assets and liabilities when necessary.

(2) The Governor must conduct the valuation and calculation of the assets and liabilities of a FHC on a quarterly basis until its ratio of equity capital to the requisite capital meets 50/100.

Addendum

This Regulation shall be effective on the date of promulgation.

Addendum

(May 16, 2001)

This regulation shall be effective on the date of promulgation.

Addendum

(July 3, 2001)

This regulation shall be effective on the date of promulgation.

Addendum

(September 4, 2001)

This Regulation shall be effective on the date of promulgation.

Addendum

(May 1, 2002)

This Regulation shall be effective on the date of promulgation.

Addendum

(September 13, 2002)

This Regulation shall be effective on the date of promulgation.