REGULATION

ON

SUPERVISION OF BANKING BUSINESS

Regulation on Supervision of Banking Business

CONTENTS

I.	General Provisions

§1.	Purpose

§2.	Scope of Equity Capital

§3.	Scope of Credit Extension

§4.	Representative Offices

II.	Reporting

Section 1. Reporting Procedures

§5.	Reporting

§6.	Reporting Documentation

Section 2. Evaluation Standards for Reporting

§7.	Reporting on the Modification of Articles of Incorporation

§8.	Reporting on Reduction in Capital

§9.	Reporting on the Relocation of Foreign Bank Branches

Section 3. Operational Funds

§10.	Operational Funds of Foreign Bank Branches

§11.	Preservation of Domestically Held Assets

§12.	Recognition of Operational Funds

Section 4. Establishment of Branches Abroad

§13.	Establishment of Branches Abroad

III. Equity Participation in Banks

Section 1. Approval of Holding Shares in Excess of Ceiling

§14.	Approval of Excess Holding of Shares by a Single Person

§15.	Requirements for Holding Shares in Excess for the Shareholder

§15-2.	Extension of Holding Share Disposition by the Non Financial Focused Business

§15-3.	Approval of Conversion Plan

§15-4.	Requirements for the Approval of Conversion Plan

§15-5.	Evaluation and Review of the Conversion Plan

§16.	[Deleted]

Section 2. Supervision of Large Shareholders

§16.	Designation of the Shareholders Exercising De Facto Influence

§16-2.	Qualification Review for the Holders of Shares in Excess of Ceiling

§16-3.	Credit Extension to Large Shareholders

§16-4.	Ceiling on the Acquisition of Stocks Issued by Large Shareholder

§16-5.	Restrictions on the Transactions with Large Shareholders

IV.	Qualifications of Directors

Section 1. Qualifications of Directors

§17.	Qualifications of Chief Executive Officer and standing member of audit committee

§18.	Qualifications of Executive Directors and Representatives of Foreign Bank Branches

§19.	Qualifications of Outside Directors

§20.	Confirmation on Suitability of the Qualification for Directors

Section 2. Composition of the Board of Directors

§21.	[Deleted]

§22.	[Deleted]

§23.	Operation of Board of Directors

§24.	Appointment and Dismissal of a Compliance Officer

§25.	Exempted Financial Institutions

V.	Guidance for Sound Management

Section 1. Prudential Management Guidelines

§26.	Prudential Management Ratios

§27.	Asset Classification

§28.	Assets Subject to Classification

§29.	Loan Loss Provisioning Standards

§30.	Risk Management System

§31.	Risk Management Structure

§32.	Accounting Standards and Settlement of Accounts

Section 2. Management Performance Evaluation and Prompt Corrective Action

§33.	Analysis and Evaluation of Management Performance

§34.	Management Improvement Recommendation

§35.	Management Improvement Request

§36.	Management Improvement Order

§37.	Postponement of Prompt Corrective Action

§38.	Emergency Measures

§39.	Submission and Evaluation of Management Improvement Plan

§40.	Implementation Period of Management Improvement Plan

§41.	Management Disclosure

Section 3. Valuation and Calculation of Assets and Liabilities for Determining Insolvent  Financial Institutions

§42.	Financial Institutions Subject to Valuation

§43.	Scope of Valuation

§44.	Valuation Criteria

§45.	Valuation Procedures.

Section 4. Issuance of Bonds

§46.	[Deleted]

§47.	Sanctions

§48.	Reporting

Section 5. Subsidiaries and Child Bank

§49.	Business Categories of Subsidiaries

§50.	Requirements for Investment in Subsidiaries

§51.	Approval of Investment in Non-Financial Subsidiaries

§52.	Ceiling on Credit Extension to Subsidiaries

§52-2.	Child Bank's Ownership of the Stocks Issued by Parent Bank

§52-3.	Child Bank's Credit Extensions to Parent Bank

§52-4.	Appropriate Security and Collateral Standards

§52-5.	Standards for Bad Assets

§53.	Loans Extended to Executive Directors and Employees of the Subsidiaries and Parent Bank

§54.	Approval of Holding Stocks in Other Companies

Section 6. Engagement in Prohibited Business

§55.	Standards of Real Estate Investment for Business Purposes

§56.	Loans to Directors and Employees of Financial Institutions

§57.	[Deleted]

§58.	Disposal of Non-Operational Assets

§59.	Exemption of Ceiling on Securities Investment

§59-2.	Special Cases of Asset Management

VI.	SUPERVISION ON SOUNDNESS OF FOREIGN EXCHANGE BUSINESS

Section 1. Registration of A Foreign Exchange Business Institution

§60.	Foreign Exchange Business Institution

§61.	Requirements for Registration

§62.	Modification(s) of Registration

Section 2. Management of Soundness of Foreign Exchange Business

§63.	Exchange Rate Risk Management

§64.	Liquidity Risk Management

§65.	Management of Financial Resources for Medium and Long Term Loans in Foreign Currency

§66.	Management on Offshore Finance

§67.	Internal Management of Financial Institution

§68.	Preclusion

Section 3. Sanctions against Violation of the Regulation on Soundness of Foreign Exchange Business

§69.	Sanctions against Violations of the Limit on Foreign Exchange Position

§70.	Sanctions against Violations of Liquidity Ratio in Foreign Currency

§71.	Status Report on Sanctions

Section 4. Reporting on Foreign Exchange

§72.	Reporting

VII.	Credit Risk Management

§73.	Reasons for Exceeding the Ceiling of Credit Extensions

§74.	Reporting on Exceeding the Ceiling of Credit Extensions

§75.	Justifications for the Extended Periods of Ceiling

§76.	Management of Large Credit Exposure

§77.	[Deleted]

§78.	Principles for the Asset Management

§79.	Main Debtor Groups

§80.	Selection and Change of the Main Creditor Banks

§81.	Restriction on the Acquisition of Debt Guarantees by Affiliate Companies

§82.	Functions of Main Creditor Banks

§83.	Prohibition of Departure from Korea Against Persons Causing Losses to Financial Institutions

VIII.	Protection of the Rights and Interests of Customers of Financial Institutions and Prevention of Financial Accidents

§84.	Standard Contract Terms and Conditions Subject to Application

§85.	Criteria for Drafting and Application of Standard Contract Terms and Conditions

§86.	Submission of Standard Contract Terms and Conditions.

§87.	Reviewing Criteria

§88.	Prohibition Against Unsound Business Practices

§89.	Public Disclosure of Financial Transaction Terms

§90.	Prevention of Financial Accidents

IX.	Exceptions to Long-Term Credit Bank and Others

§91.	Exceptions to Long-Term Credit Bank

§92.	Exceptions to the Korea Development Bank

§93.	Exceptions to the Industrial Bank of Korea

§94.	Exceptions to the Export-Import Bank of Korea

§95.	Exceptions to the National Agricultural Cooperative Federation

§96.	Exceptions to the National Federation of Fisheries Cooperatives

§97.	Evaluation of the Soundness of the Korea Development Bank, etc.

§98.	Submission of Business Report by the Development Bank, etc.

X.	Supplementary Provisions

§99.	Assistance in Affairs

§100.	Reporting

§101.	[Deleted]

Addenda

Enacted on April 1, 1998

Amended on June 12, 1998

Amended on July 24, 1998

Amended on September 14, 1998

Amended on September 25, 1998

Amended on October 9, 1998

Amended on November 27, 1998

Amended on December 18, 1998

Amended on December 29, 1998

Amended on January 15, 1999

Amended on March 12, 1999

(Enacting provisions on examination of banking institution and sanction on banking institutions)

Amended on March 26, 1999

Amended on March 30, 1999

(Enacting provisions on the supervision on foreign exchange business)

Amended on May 21, 1999

Amended on June 11, 1999

Amended on July 23, 1999

Amended on September 17, 1999

Amended on December 24, 1999

Amended on January 14, 2000

(Enacting provisions on the delegation, etc., of business of banking institutions)

Amended on January 28, 2000

Amended on June 23, 2000

Amended on July 21, 2000

Amended on August 25, 2000

Amended on September 29, 2000

Amended entirely on December 29, 2000. FSC 2000-118

Amended on July 2, 2001 FSC 2001-38

Amended on September 4, 2001 FSC 2001-62

Amended on December 19, 2001 FSC 2001-105

Amended on April 1, 2002 FSC 2002-12

Amended on May 1, 2002 FSC 2002-20

Amended on September 23, 2002 FSC 2002-58

Amended on November 13, 2002 FSC 2002-74

Amended on November 27, 2002 FSC 2002-77

Amended on December 18, 2002 FSC 2002-79

Amended on January 3, 2003 FSC 2002-86

Amended on April 16, 2003 FSC 2003-25

Amended on July 16, 2003 FSC 2003-36

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 institutions by the Financial Supervisory Commission (hereinafter, "the FSC"), articulated under the Banking Act (hereinafter, "the Act") and its decree (hereinafter, "the Decree"), the Foreign Exchange Transactions Act and its decree, the Long Term Credit Bank Act and its decree, the Act of Korea Development Bank and its decree, the Act of Industrial Bank of Korea and its decree, the Act of Export-Import Bank of Korea and its decree, the Act of National Agricultural Cooperatives Union and its decree, the Act of Fisheries and Cooperatives Union and its decree, the Act Concerning the Establishment of Financial Supervisory Organizations and its decree, and other relevant statutes.

§2. Scope of Equity Capital

(1) Equity capital under Article 2 paragraph (2) of the Act and Article 1-2 of the Decree is computed by subtracting deductible items from core and supplementary capitals on the financial statements of an individual financial institution.

(2) The scopes of core capital, supplementary capital and deductible items under paragraph (1) are set forth in Appendix Table 1, and the available limit on the supplementary capital follows the calculation method of core capital as provided by Article 26 paragraph (2). However, Capital B funds of Korean branches of foreign banks are recognized as the equity capital in total.

§3. Scope of Credit Extension

The scope of credit extension pursuant to the provisions under Article 2 paragraph (2) of the Act and Article 1-3 of the Decree is set forth in Appendix Table 2.

§4. Representative Offices

"Representative offices" under Articles 13 and 58 of the Act mean any facilities other than normal business offices, where resident staffs conduct representational and administrative functions, such as collection and supply of the banking business information, investigation of financial and economic developments, liaison between the headquarter and branches, and customer relations.

CHAPTER II.

REPORTING

Section 1.

Reporting Procedures

§5. Reporting

(1) When intending to carry out business(es) applicable under the following subparagraphs, financial institution(s) must report a priori to the Financial Supervisory Commission (hereinafter, the FSC) via the Governor of the Financial Supervisory Service (hereinafter, the Governor).

1. Modification(s) of the articles of incorporation as stipulated under Article 10 paragraph (1) subparagraph 1 of the Act. In the event any one of following cases occur, however, financial institution(s) must report to the Governor within seven days from the date of modification(s).

a. Where the articles of incorporation are altered or modified identically to the mandate(s) of the Governor in accordance with the Act, its Decree, and this regulation.

b. Where the articles of incorporation are altered or modified identically to the substance approved or authorized under the Act.

c. Where no substantial alteration(s) or modification(s) are made in the articles of incorporation, such as the radical transformation of financial institutions.

2. Reduction in capital under Article 10 paragraph (1) subparagraph 2 of the Act

(2) When there are the alterations of capitals to which paragraph (1) subparagraph 2 does not apply, financial institutions must report to the Governor within seven days from the date of such alterations.

(3) In the event where the filing report under paragraph (1) subparagraph 1 or 2 does not meet the standards under Article 7 or 8, the FSC or the Governor may recommend the financial institution(s) to correct or supplement it.

(4) When intending to relocate branches or close representative offices under Article 58 paragraph (3) of the Act, foreign financial institution(s) must report to the Governor, who must in turn report to the FSC on subsequent administrations on a half yearly basis.

§6. Reporting Documentation

The procedure in reporting, the submission of documentation and other necessary matters stipulated in Article 5 are determined by the Governor.

Section 2.

Evaluation Standards for Reporting

§7. Reporting on the Modification of Articles of Incorporation

In the event of a reporting pursuant to Article 5 paragraph (1) subparagraph 1, such reporting must be evaluated to the satisfaction of the standards under each of the following subparagraphs.

1. That it must not violate relevant regulations;

2. That it must not interfere with essential qualities of a corporation; and

3. That it must not infringe upon the rights and interests of customers.

§8. Reporting on Reduction in Capital

In the event of a reporting pursuant to Article 5 paragraph (1) subparagraph 2, such reporting must be evaluated to the satisfaction of the standards under each of the following subparagraphs.

1. That reduction in capital is a measure unavoidable; and

2. That reduction in capital must not give rise to concerns about the protection of depositors and creditors.

§9. Reporting on the Relocation of Foreign Bank Branches

(1) In the event of a reporting on the relocation of foreign bank branches pursuant to Article 5 paragraph (4), the Governor shall evaluate such reporting to the satisfaction of the standards under each of the following subparagraphs.

1. For relocation within the boundaries of same special metropolitan cities, metropolitan cities and provinces, feasibility of the business plan(s) for the period following such relocation must be recognized.

2. For relocation to other special metropolitan cities, metropolitan cities and provinces, feasibility of the business plan(s) for the period following such relocation must be recognized and such relocation shall not give rise to concerns about the protection of domestic depositors and parties to financial transactions.

(2) In the event of a reporting on the closure(s) of Korean offices of foreign bank(s) pursuant to Article 5 paragraph (4), the Governor shall evaluate feasibility of the plan(s) for resolving assets, liabilities, and staffs of the offices in question.

Section 3.

Operational Funds

§10. Operational Funds of Foreign Bank Branches

(1) The operational funds of the foreign bank branches under Article 26 of the Decree are classified as Capital A Funds and Capital B Funds.

(2) The Capital A Funds under paragraph (1) shall be the funds falling under Article 26 subparagraph 1 through 3.

(3) The Capital A Fund for each foreign bank branch shall be at least KRW 3 billion.

(4) The Capital B Funds under paragraph 1 shall be the aggregate amounts of funds under the following subparagraphs and shall not exceed 200/100 of the total capital on the balance sheet.

1. Funds denominated in Korean won that foreign bank branch(es) sell to the Bank of Korea under the repurchase agreement for holding and operating.

2. Funds that foreign bank branch(es) have borrowed from their headquarters or other branches abroad under the debt servicing term of a year or longer and have operated in Korea (hereinafter, "interoffice long term loan"). <Amended on July 2, 2001>

(5) Funds operated in Korea under paragraph 4 subparagraph 2 are calculated by subtracting any increased amount of following items against those of last month from loan due over one year, or by adding any decreased amount of following items against those of last month to loan due over one year:

1. Monthly average balance of the funds that foreign bank branch(es) have credited against headquarters or branches abroad.

2. Monthly average balance of the funds denominated in Korean won held and operated through their sales to the Bank of Korea under the repurchase agreement. (New on July 2, 2001)

(6) Notwithstanding the provisions of paragraph (5), the Governor may set aside interoffice long term loan(s) from the Capital B in the event of determining that such loan(s) have not been operated in Korea pursuant to paragraph (4) subparagraph 2. (New on July 2, 2001)

(7) Foreign bank branches must submit to the Governor such documents as statements on interoffice long term loan(s), contract(s), and confirmation documents of fund transfer. (New on July 2, 2001)

(8) For a single foreign financial institution operating a multiple number of branches in Korea, the aggregate sum of the operational funds of all branches shall be viewed as the capital of the foreign bank in question.

§11. Preservation of Domestically Held Assets

(1) When its domestically held assets are less than the amount equivalent to its operational funds, any foreign bank branch must cover the difference within ninety days from the date such difference as shortage was incurred.

(2) The domestically held assets pursuant to paragraph (1) shall be all of the assets in Korean won and foreign currencies, which are operated in Korea.

(3) The Governor may issue a preservation order pursuant to paragraph (1) prior to timeframe prescribed under paragraph (1) when he or she determines it is necessary. Any foreign bank branch(es) in receipt of such order(s) must carry out the order(s) of preservation within thirty days from the date of receipt.

(4) Preservation undertaken pursuant to the provisions under paragraphs (1) and (3) shall mean withdrawal of assets from abroad or supply of funds from headquarters, the result of which the foreign bank branch(es) in question must report to the Governor without any delay.

§12. Recognition of Operational Funds

(1) For the recognition of operational funds of foreign bank branch(es), considerations shall be given to the soundness of management and the capital adequacy of such foreign bank branch(es).

(2) Provisions under Article 8 shall apply in the event of recognizing the reduction in Capital A Fund.

(3) For obtaining a recognition of Capital A Fund, foreign bank branch(es) shall submit form(s) of application or registration to the Governor in the manner(s) he or she mandates.

(4) The FSC shall recognize the Capital A Fund following the opening of the first foreign bank branch and the reduction in the Capital A Fund of a foreign bank branch, and the Capital B Fund mentioned in Article 10 paragraph (4) shall be deemed to have been recognized by the FSC.

(5) A fund not stipulated under paragraph (4) shall be recognized by the Governor; provided any increase, or transfer of reserves into, the capital A fund shall be deemed to have been recognized by the Governor by a report made on the results of the implementation. <Amended September 23, 2002>

Section 4.

Establishment of Branches Abroad

§13. Establishment of Branches Abroad

When a banking institution intends to open its branch(es) in the territory other than that of the Republic of Korea (hereinafter, "overseas branches"), its overseas representative offices, and overseas subsidiaries (hereinafter, "overseas subsidiaries"), it must submit plan(s) in advance to the Governor for consultation and the Governor should report to the FSC regarding the consultation on a half yearly basis.

CHAPTER III.

EQUITY PARTICIPATION IN BANKS

Section 1.

Approval of Holding Shares in Excess of Ceiling

<Added September 23, 2002>

§14. Approval of Excess Holding of Shares by a Single Person

(1) In the event a single, identical person intends to hold stocks of a financial institution in excess of the ceiling (including reacquisition) pursuant to Article 15 paragraph (3) and Article 16-2 paragraphs (2) and (3) of the Act, he shall apply to the FSC for an approval through the Governor. <Amended September 23, 2002>

(2) The person in receipt of the approval pursuant to the provisions of paragraph (1) shall acquire the stocks within 6 months from the date of the approval, unless the Governor has required otherwise or extended the term.  <Amended September 23, 2002>

(3) In the approval of holding shares in a financial institution, procedures of the approval and other matters needed other than those stipulated under paragraphs (1) and (2) shall be determined by the Governor. <Amended September 23, 2002>

§15.  Requirements for Holding Shares in Excess for the Shareholder

"Standards determined by the Financial Supervisory Commission" in the <Annexed Table> of the Enforcement Decree shall be as in the <Annexed Table 2-2>.  <Amended September 23, 2002>

§15-2. Extension of Holding Share Disposition by the Non Financial Focused Business <Added September 23, 2002>

(1) To extend the term for disposing of the shares held pursuant to the proviso of Article 16-2 paragraph (5) of the Act, the extension shall be applied for with the FSC via the Governor.

(2) The extension provided under paragraph (1) shall not exceed the term stipulated by the disposition order issued pursuant to Article 16-2 paragraph (5) of the Act.

§15-3. Approval of Conversion Plan <Added September 23, 2002>

(1) To obtain an approval for the plan to convert into an entity other than a non financial focused business pursuant to the provisions of Article 16-2 paragraph (3) subparagraph 1 of the Act (hereinafter, "the conversion plan"), the non financial focused business shall submit an application for the approval to the FSC.

(2) The FSC shall review the application made pursuant to the provisions of paragraph (1) to see whether it meets the requirements of Article 11-2 of the Enforcement Decree and Article 15-4 of this Regulation, then decide whether to approve, the results of which it shall notify the applicant in writing.

(3) The FSC or the Governor may require submission of additional information and materials if needed to conduct the review provided under paragraph (2).

(4) In the approval of the conversion plan, procedures for the approval and other matters needed other than those stipulated under paragraphs (1) through (3) shall be decided by the Governor.

§15-4. Requirements for the Approval of Conversion Plan <Added September 23, 2002>

Specific standards for the approval of the conversion plan pursuant to the provisions of Article 11-2 paragraph (3) of the Enforcement Decree are as follows;

1. That disposition method and timeframe, among others, by the non financial company subject to disposition shall be specified;

2. That the intent to dispose of the holder of the shares issued by the non financial company subject to disposition (including share; the same hereinafter in this Article) shall be verifiable through the Board of Directors' approval of the disposition plan and the disposition agreement certified by the notary public, among others;

3. That the size, timeframe and the method, among others, of the capital increase, if intended, of the financial company shall be specified; and

4. That the disposition of the shares issued by the non financial company subject to disposition and its capital increase shall not be restricted by relevant statutes and inter shareholder agreements.

§15-5. Evaluation and Review of the Conversion Plan <Added September 23, 2002>

(1) The Governor may have at least two professional organizations including the person stipulated under paragraph (2) subparagraph 1 prior to the approval by the FSC pursuant to the provisions of Article 15-3 paragraph (2).

(2) Professional organizations performing the evaluation of the conversion plan shall be applicable under each of the following subparagraphs;

1. Accounting corporation established under the Certified Public Account Act; and

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

(3) Any person applicable under any of the following subparagraphs shall be disqualified from the professional organizations stipulated under paragraph (2), unless the Governor acknowledges otherwise;

1. Accounting corporation suspended of business in accordance with the Certified Public Accountant Act;

2. Accounting corporation restricted of account auditing business for a specific company in accordance with the Act Concerning the External Audit of Stock Corporation, unless it is a non financial focused business that intends to subject its conversion plan to an evaluation;

3. Credit information business suspended of credit evaluation business in connection with its business conducted;

4. Person providing services to the non financial focused business in question, or having had provided services within the recent two years; and

5. Person having special relationship with the non financial focused business in question, as provided under Article 1-4 of the Enforcement Decree.

(4) Person subject to the conversion shall report to the Governor on a quarterly basis on the performance of the conversion plan by the last day of the following month in the manner designated by the Governor.

(5) The Governor shall review the performance of the conversion plan and report to the FSC on its results, which shall then be publicly disclosed.

(6) The Governor shall review the performance of the conversion plan and report to the FSC on its results, which shall then be publicly disclosed

§16. [Deleted September 23, 2002]

Section 2.

Supervision of Large Shareholders

<Added September 23, 2002>

§16. Designation of the Shareholders Exercising De Facto Influence <Added September 23, 2002>

The FSC or the Governor may require submission of the information and materials needed to check whether shareholders of the financial institution in question are applicable under Article 1-6 of the Enforcement Decree.

§16-2. Qualification Review for the Holders of Shares in Excess of Ceiling <Added September 23, 2002>

(1) The Governor shall review whether the holders of shares in excess of the ceiling provided under Article 16-4 paragraph (1) of the Act are meeting the requirements provided under the <Annexed Table> of the Enforcement Decree and the <Annexed Table 2-2> of this Regulation on a semi annual basis, the results of which he shall report to the FSC.

(2) Holders of the shares in excess of the ceiling shall submit to the Governor information and materials needed for the review conducted pursuant to paragraph (1) in the manner designated by the Governor.

(3) Notwithstanding paragraph (1), the Governor may conduct the review whenever it is deemed necessary, particularly where unlawful transactions by and among the holders of shares in excess and financial institutions are suspected.

(4) The Governor may require submission of information and materials needed to conduct the review provided under paragraphs (1) and (3) from the financial institution or the holder of shares in excess in question.

(5) The Governor may decide matters needed to conduct the review other than those provided under paragraphs (1) through (4).

§16-3. Credit Extension to Large Shareholders <Added September 23, 2002>

(1) "Inextricable circumstances recognized by the Financial Supervisory Commission" under Article 20-5 paragraph (4) subparagraph 5 of the Enforcement Decree means any of the following subparagraphs;

1. Suspense payment on payment guarantee;

2. Increased guarantee on bond payment, caused by increased interest rate;

3. Changes in the items of the balance sheet of the financial institution;

4. Changes in the scope of credit extension in accordance with Article 3;

5. Emergence of new large shareholder; and

6. Reduced shareholding ratio of the large shareholders.

(2) The financial institution shall submit to the Governor the plan required of approval by the FSC as provided under Article 20-5 paragraph (4) of the Enforcement Decree within one month from the date of the cause (and from the date the cause is known if the cause is applicable under paragraph (1)-2 subparagraphs 5 and 6).

(3)  The single transaction provided under Article 20-5 paragraph (5) of the Enforcement Decree shall be calculated based upon the amount agreed upon (amount acquired by way of purchase and sales agreement in the event of private bond acquisition provided under Article 20-5 paragraph (6) of the Enforcement Decree; the same hereinafter in this Article) in the credit agreement (including renewal, reaging, and extension of the existing agreement) specific to an identical individual or business; provided, where a multiple number of agreements are reached by and among the identical individual or business, the said calculation shall be based upon total amount of each individual agreement.

(4) The financial institution shall report to the Governor on the status of the credit extensions made to the large shareholders pursuant to Article 35-2 paragraphs (4) and (5) of the Act in the manner designated by the Governor.

(5) "Matters designated by the Financial Supervisory Commission" under Article 20-5 paragraph (7) of the Enforcement Decree means purpose of the fund, terms of transaction such as maturity and interest rates applied, type of collateral and valuation, and other special terms of agreement by each form of credit extension, whereas disclosure of credit extensions on the entire large shareholders shall be made with the inclusion of each individual and business.

§16-4. Ceiling on the Acquisition of Stocks Issued by Large Shareholder <Added September 23, 2002>

(1) The financial institution shall not acquire stocks not traded in the securities markets (including the KSE, the KOSDAQ, and others alike overseas) in excess of 0.5% of its equity capital.

(2) To extend the term for disposing of the stocks issued by the large shareholders pursuant to the proviso of Article 20-6 paragraph (3) of the Enforcement Decree, the extension shall be applied for with the FSC via the Governor.

(3) The single transaction provided under Article 20-6 paragraph (4) of the Enforcement Decree shall be calculated based upon the amount acquired by the single purchase and sales agreement, whereas the calculation shall be based upon the total amount in the event a multiple number of purchase and sales agreement are made on the identical day

(4) The financial institution shall report to the Governor in the manner designated by the Governor in the event it has acquired stocks issued by the large shareholders applicable under Article 35-3 paragraphs (3) and (4) of the Act.

(5) "Matters designated by the Financial Supervisory Commission" under Article 20-6 paragraph (5) of the Enforcement Decree means each of the following subparagraphs, and the acquisition of stocks issued by the large shareholders shall be classified by the issuing company and disclosed;

1. Purpose of acquisition;

2. Holding ratio of the stocks held as of the end of quarter;

3. Market value of the stocks held as of the end of quarter; and

4. Disposition value and income status if the stocks held are disposed of during the quarter.

§16-5. Restrictions on the Transactions with Large Shareholders <Added September 23, 2002>

(1) "Where classified as sub standard by the Financial Supervisory Commission as a result of evaluating the large shareholders' credit risks based upon the asset classification standards prescribed by the Financial Supervisory Commission" means "substandard" following the asset quality classification conducted pursuant to the provisions of Article 27.

(2) Where its large shareholders are applicable under any of the subparagraphs of Article 20-8 paragraph (1) of the Enforcement Decree, the financial institution shall report to the Governor without any delay.

CHAPTER IV.

QUALIFICATIONS OF DIRECTORS

Section 1.

Qualifications of Directors

§17. Qualifications of Chief Executive Officer and Standing Member of Audit Committee

Any person(s) applicable under any one of the following subparagraphs cannot become a chief executive officer or a standing member of audit committee (hereinafter, "standing member of the audit committee").

1. Any person under Article 18 paragraph (1) of the Act, with the exception that Article 23-2 paragraph (3) of the Act is only applicable to the standing member of the audit committee;

2. Any executive director imposed of a warning for reprimand or heavier disciplinary action in accordance with the Regulations Concerning the Examination and Sanction of Financial Institutions, and whose disciplinary period stipulated under any of the following items has not yet elapsed; <Amended September 23, 2002>

a. Recommendation for dismissal from the office:  Five years from the date the recommendation is made; <Amended September 23, 2002>

b. Suspension of duties: Four years from the date the suspension is terminated; <Amended September 23, 2002>

c. Warning for reprimand: Three years from the date the warning is issued.

3. Any employee required of reduced salary and wages or imposed of heavier disciplinary actions by the Governor in accordance with the Act, the Act on the Establishment of Financial Supervisory Organizations, and relevant financial statutes, or any employee imposed of reduced salary and wages or heavier disciplinary actions by the employer institution, whose disciplinary period stipulated under any of the following items has not yet elapsed; <Added September 23, 2002>

a. Removal from the office : Five years from the date of removal;

b. Suspension from the office : Four years from the date the suspension is terminated; and

c. Reduced salary and wages : Three years from the date the reduction is terminated

4. Any executive director or employee imposed of sanction or disciplinary action equivalent to those stipulated under subparagraph 2 or 3 by other supervisory authorities during the term of office or employment, whose disciplinary period stipulated under subparagraph 2 or 3 has not yet elapsed. <Amended September 23, 2002>

5. Any executive director or employee who resigned prior to the imposition of disciplinary action in accordance with subparagraphs 2 through 4, or who resigned by public scrutiny, the term of which has not yet elapsed three years. <Amended September 23, 2002>

6. Any person who is regarded as a person standing for the interest of specific clients in relation to credit operation, due to his special relationship with borrowers of the financial institution concerned; and

7. Any person who has notably disturbed credit order due to his participation, or involvement in large bad loans or financial accidents, and has not been subject to the disciplinary action for the disturbance thereof by supervisory and examination authorities, and for whom three years have not elapsed since the occurring date thereof.

§18. Qualifications of Executive Directors and Representatives of Foreign Bank Branches

Any person applicable under Article 17 subparagraphs 1 through 5 shall be disqualified from acting as a standing executive director or from representing a foreign bank in its branch office. <Amended September 23, 2002>

§19. Qualifications of Outside Directors

(1) Any person applicable under any one of the following subparagraphs cannot become an outside director.

1. Any person applicable under Article 18 paragraph (1) of the Act;

2. Person having history of credit delinquency as stipulated in the <Annexed Table 2-2> (executive directors and employees if the credit delinquency relates to a juridical person). <Amended September 23, 2002>

3. Directors and employees of a financial institution , subsidiary of a financial institution, or a financial holding company established under the Financial Holding Company Act, other than those applicable under each of the following items; <Amended September 23, 2002>

a. Executive director or employee of the parent bank of the financial institution in question, or of the financial holding company operating the financial institution in question as its subsidiary;

b. Person other than a standing executive director of the subsidiary, the child bank of the financial institution in question, or of the financial institution that is another subsidiary of the financial holding company operating the financial institution in question as its subsidiary; and

c. Outside director of a subsidiary of other financial institution

4. Standing executive directors or employees of the financial institution in question, subsidiary of the financial institution in question, or of its child bank, who served during the recent 2 years, unless applicable under any of the following items; <Added September 23, 2002>

a. Person dismissed by a financial institution that was merged with another in accordance with the Act on Structural Improvement of the Financial Industry; and

b. Executive directors or employees of the bank holding company operating the financial institution in question as its subsidiary

5. Any person resigned or retired due to the responsibility of giving rise to public criticism such as financial accidents, and for whom three years have not yet elapsed since the date of resignation or retirement. <Amended September 23, 2002>

6. Person providing account auditing, tax affairs, legal consulting, business and management consulting or other services to the financial institution in question (employee and executive director if the services provider is a juridical person). <Amended September 23, 2002>

(2) [Deleted September 23, 2002]

(3) [Deleted September 23, 2002]

(4) [Deleted September 23, 2002]

§20. Confirmation on Suitability of the Qualification for Directors

(1) When a financial institution intends to appoint its executive directors, it shall check for the propriety of the qualification standards stipulated under Articles 17 through 19, the results of which it shall report to the Governor as soon after the general shareholders' meeting (after appointment, if a foreign bank's branch office) in the manner as mandated by the Governor; provided where a candidate for the presidency of a bank or standing member of the audit committee is appointed, the report shall be made prior to the convening of the Board of Directors or general shareholders' meeting. <Amended September 23, 2002>

(2)  Notwithstanding the provisions of paragraph (1), financial institutions subject to Article 191-10 paragraph (2) of the Securities and Exchange Act shall report to the Governor on the results of checking the propriety of the executive director's qualification standards as soon after notice, or public announcement, of the convening of the general shareholders' meeting for the appointment of executive directors is made.  <Added September 23, 2002>

Section 2.

Composition of the Board of Directors

<Amended September 23, 2002>

§21. [Deleted September 23, 2002]

§22. [Deleted September 23, 2002]

§23. Operation of Board of Directors

(1) A standing member of auditors cannot serve simultaneously as the Auditing Committee member.

(2) The Governor may decide matters pertinent to the public announcement on transactions between either the shareholders nominating outside director candidates to the Outside Director Nomination Committee or executive directors and the financial institution in question, in addition to other matters needed to operate the Board of Directors. <Amended September 23, 2002>

§24. Appointment and Dismissal of a Compliance Officer

A financial institution must, when appointing or dismissing a compliance officer under Article 17-3 paragraph (3) of the Decree, notify the Governor without any delay.

§25. Exempted Financial Institutions

(1) A financial institution must, when it is exempted from Article 26 of the Act or fails to meet the exemption standards under the same article, report to the Governor without delay.

(2) A financial institution failing to meet the exemption standards stipulated under Article 26 shall comprise the Audit Committee in accordance with the provisions of Article 24 of the Act in the first general shareholders' meeting held since the date of the failure; provided, however, members of the Audit Committee, whose term does not expire at the convening of the general shareholders' meeting in question, shall be deemed to be in receipt of the nomination pursuant to the provisions of Article 24 of the Act. <Amended September 23, 2002>

CHAPTER V.

GUIDANCE FOR SOUND MANAGEMENT

Section 1.

Management Guidance Standards

§26. Management Guidance Ratios

(1) A financial institution shall maintain the management guidance ratios under each of the following subparagraphs.

1. Ratio of equity capital to risk-weighted assets: 8/100 or more

2. Ratio of liquidity assets in won currency to liquidity liabilities in won currency (hereinafter, "liquidity ratio in won currency"): 100/100 or more

(2) Detailed criteria on the calculation of ratios under paragraph (1) shall be determined by the Governor. The drafting method of consolidated balance sheet and the calculating methods of equity capital and risk-weighted assets shall be determined in consideration of the standards of the Bank for International Settlements, whereas the ratio under paragraph (1) subparagraph 1 being based on the consolidated balance sheet.

(3) The Governor may require the submission of a plan or a contract for the improvement of a financial institution with the possible aggravation of management guidance ratio under paragraph (1) or the one with the management weakness in the management status analysis or evaluation under Article 33, or the Governor may conclude management improvement agreements with the financial institution concerned. However, this is not applicable to any financial institution in receipt of management improvement recommendation, management improvement request, or management improvement order pursuant to Articles 34 to 36  of this Regulation.

§27. Asset Soundness Classification

(1) Financial institutions shall regularly classify the soundness of their holding assets into five different categories of "normal," "precautionary," "substandard," "doubtful," and "estimated loss" while considering the debt-repayment capability of the borrowers and the contents of the financial transactions, and accumulate and maintain adequate loss provisioning, including allowances for payment guarantees (as such hereinafter.).

(2) For asset soundness classification and loan loss provisioning accumulation under paragraph (1), financial institutions shall establish standards for asset soundness classification and loss provisioning accumulation including the evaluation standards for the debt-repayment capability of the borrowers by reflecting the standards under Appendix Table 3 and Article 29.

(3) Financial institutions shall report to the Governor on the standards determined under paragraph (2), including the results therefrom.

(4) The Governor may examine adequacy of asset soundness classification and loan loss provisioning accumulation and require the corrections thereof when determining their inadequacy.

(5) To maintain the feasibility and objectivity of the asset classification and loss provisioning standards pursuant to the provisions under paragraph (1), financial institutions must develop and operate an internal control system, which is critical for maintaining independent credit review ability.

(6) Financial institutions shall secure the soundness of their assets through the early write-off of their assets classified as "doubtful" or "estimated loss" pursuant to paragraph (1) (hereinafter, "non-performing assets").

(7) The Governor may require such institution to write off the specific non-performing assets  when he deems that the write-off performance of the non-performing assets of a financial institution is insufficient.

§28. Assets Subject to Classification

Holding assets under Article 27 paragraph (1) corresponds to the assets determined under the following subparagraphs, which includes such relevant assets as trust accounts or consolidated financial accounts (with the inclusion of asset investments of cash management account; as such hereinafter).

1. Loans (hereinafter, "loans") under the Regulation on Banking Business Accounting Transactions determined by the Securities and Futures Commission.

2. Payment guarantees with determinate principal obligation. (hereinafter, "determinate payment guarantees")

3. Securities

4. Lease assets

5. Suspense payments or amount receivable

6. Assets recognized by other financial institutions as necessary for classification.

§29. Loan Loss Provisioning Standards

(1) Standards for loan loss provisioning of financial institutions are as follows.

1. Financial institutions shall accumulate the amounts under each of the following items as loan loss provisioning for the bank account, loans from merchant banking accounts, financial leasing bonds, financial leasing prepayment and suspense payment in nature of credit at the present date of accounts settlement in accordance with the results from classifications during the period of settlement of accounts (including the provisional closing on a quarterly basis; hereinafter as such in this Article.)

a. 0.5/100 or more of assets classified as "normal"

b. 2/100 or more of assets classified as "special mention"

c. 20/100 or more of assets classified as "substandard"

d. 50/100 or more of assets classified as "doubtful"

e. 100/100 of assets classified as "estimated loss"

2. Notwithstanding the provisions of subparagraph 1, loss provisioning shall be made with respect to the housing loans for the amounts stipulated under each of the following items; <Added November 27, 2002>

a. At least 0.75/100 of the assets classified as "normal";

b. At least 8/100 of the assets classified as "special mention";

c. At least 20/100 of the assets classified as "substandard";

d. At least 55/100 of the assets classified as "doubtful"; and

e. 100/100 for the assets classified as "estimated loss."

3. Notwithstanding the provisions of subparagraph 1, loss provisioning shall be made with respect to the credit card loans for the amounts stipulated under each of the following items; <Amended November 27, 2002>

a. At least 1/100 of the assets classified as "normal";

b. At least 12/100 of the assets classified as "special mention";

c. At least 20/100 of the assets classified as "substandard";

d. At least 60/100 of the assets classified as "doubtful"; and

e. 100/100 for the assets classified as "estimated loss."

4. Notwithstanding subparagraph 1, loan loss provisioning may not be accumulated in cases where borrower(s) are the Government or local governments or call loans, repurchase agreements (RPs), and loans between banks and foreign currency loans  between the banks among loans classified as "normal".

5. Financial institutions shall accumulate the amounts determined in the following items as the payment guarantee reserves for the determinate payment guarantee at the present date of accounts settlement pursuant to the results of asset soundness classification during the period of settlement of accounts.

a. 20/100 or more of the determinate payment guarantee classified as "normal"

b. 50/100 or more of the determinate payment guarantee classified as "doubtful"

c. 100/100 or more of the determinate payment guarantee classified as "estimated loss"

(2) Notwithstanding paragraph(1), the Governor may require the relevant financial institution to accumulate the total amounts of expected loss into special loss provisioning by the end of a relevant quarter in the event a financial accident under the Regulation Concerning the Examination and Sanction of Financial Institutions has led or is expected to lead to losses exceeding the amounts equivalent to 1/100 of equity capital as of the end of the previous month.

(3) In the event asset soundness classification of the expected loss is determined after special loss provisioning has been made under paragraph (2), the financial institution may accumulate the loan loss provisioning pursuant to paragraph (1).

§30. Risk Management System

(1) Financial institutions shall have in place a system for recognizing, assessing, monitoring and controlling various risks in all kinds of transactions..

(2) For efficient risk management, financial institutions shall set up and operate an adequate risk-bearing ceiling and transaction limit by departments, transactions or person in charge

(3) Financial institutions should assess and manage credit risk, market risk, liquidity risk and other various risks which may occur in their transactions by each type.

(4) Financial institutions should comprehensively recognize and monitor the significant changes in risks in connection with subsidiaries.

§31. Risk Management Organization

(1) The board of directors of a financial institution shall deliberate and decide on the matters necessary for risk management falling under any of the following subparagraphs. However, if necessary for efficient risk management, a committee for risk management in the board of directors (hereinafter, "committee") may be established and operated for this duties

1. Establishment of risk management basic policy consistent with management strategy.

2. Determination of risk levels which can be borne by financial institutions

3. Approval of ceiling on optimum investment or ceiling on loss allowance

4. Establishment and revision of regulations on risk management

(2) Financial institutions shall set up a risk management unit for comprehensive management of the risks which may occur in its business and support of the board of directors (including the committee) and the management.

(3) The risk management unit shall be independent of other business departments and perform the duties under any of the following subparagraphs.

1. Examination and analysis on operation status of  risk ceiling

2. Operation of the risk management information system

3. Timely presentment of risk management information to the board of directors (including the committee) and the management.

§32. Accounting Standards and Settlement of Accounts

(1) Financial institutions shall comply with the Accounting Procedure for Banking Industry determined by the Securities and Futures Commission in accounting and drafting financial statements.

(2) Detailed criteria pertaining to accounting and the kinds and presentation orders of accounting titles other than those determined in the Accounting Procedure for Banking Industry under paragraph (1), as well as calculation standards of foreign currency accounts requested by the Enforcement Decree of Foreign Exchange Transactions Act, shall be mandated by the Governor.

(3) "The consolidated financial statements set by the FSC" under Article 41 paragraph (1) of the Act refer to the consolidated balance sheet and the consolidated income statement.

(4) In the event a financial institution intends to extend the deadline of the public announcement pursuant to Article 41 paragraph (1)p of the Act, it shall submit such necessary documents as those describing the kinds of financial statements subject to extension, time limit, and the reasons thereof, and must obtain the approval from the Governor within two months from the date of settlement.

(5) Where a financial institution provides for the general public to review the financial statements that must be disclosed pursuant to the provisions of Article 41 paragraph (1) of the Act via the Korea Federation of Bank's homepage, such a disclosure shall be deemed to have been made in an electronic document form in accordance with Article 65-2 of the Act, which shall also include matters that are identifiable as disclosed by the financial institution in question.  <Added September 23, 2002>

Section 2.

Management Performance Evaluation and Prompt Corrective Action

§33. Management Performance Analysis and Evaluation

(1) The Governor must analyze the management performance of financial institutions and thereby supervise the soundness of management practice.

(2) The Governor may evaluate the management performance through the examination(s) of financial institutions, and reflect the result(s) thereof in his supervisory and examining functions.

(3) The headquarters of financial institutions, foreign bank branches in Korea, and overseas branches and subsidiaries of financial institutions shall be subject to the evaluation of management performance pursuant to paragraph (2), and the ratings of evaluation shall be classified into five grades: 1st grade (excellent), 2nd grade (good), 3rd grade (mediocre), 4th grade (weak), and 5th grade (risky).

(4) The specifics concerning management performance evaluation pursuant to paragraph (2) shall be determined by the Governor wherein he or she may take into consideration the management performance of companies that are subject to consolidation in calculating the ratio of equity capital against the risk-weighted assets under Article 26 paragraph (1) subparagraph 1.

§34. Management Improvement Recommendation

(1) The Governor must, in case a financial institution is applicable under any one of the following subparagraphs, recommend such a financial institution to take necessary measures.

1. When the ratio of equity capital to risk weighted assets under Article 26 falls short of 8/100.

2. Where the overall rating is Grade 1, 2, 3 or better, whereas the rating for asset quality or capital adequacy is Grade 4 or 5 as a result of the management performance evaluation conducted  pursuant to Article 33. <Amended September 23, 2002>

3. When a financial institution is obviously adjudged to be below the standards under subparagraphs 1 and 2 due to serious financial accidents or bad loans.

(2) The necessary measures under paragraph (1) correspond to those applicable under all or parts of the following subparagraphs.

1. Improvement in manpower and organizational management

2. Cost reduction

3. Efficient management of business offices

4. Restrictions on investments in fixed assets, entries into new business areas, and new capital investments

5. Disposals of non-performing assets

6. Increases in, or reductions of paid-in capital

7. Restrictions on dividends

8. Arrangements of special loan loss provisioning

(3) The Governor may, when making a recommendation pursuant to paragraph (1), issue a letter of precaution or warning to the financial institution or executive directors concerned.

§35. Management Improvement Requirement

(1) The Governor must, in case a financial institution is applicable under any one of the following subparagraphs, require such a financial institution to take necessary measures upon resolutions of the FSC.

1. When the ratio of equity capital to risk weighted assets mentioned in Article 26 falls short of 6/100.

2. Where the overall rating is Grade 4 or 5 as a result of the management performance evaluation conducted pursuant to Article 33. <Amended September 23, 2002>

3. When a financial institution is obviously adjudged to be below the standards under subparagraphs 1 and 2 due to serious financial accidents or bad loans.

4. When the financial institution subject to the management improvement recommendation pursuant to Article 34 paragraph (1) does not faithfully implement its management improvement plan(s).

(2) The necessary measures under paragraph (1) mean those applicable under all or parts of the following subparagraphs.

1. Closure, consolidation, or restriction on the establishment of business offices

2. Reduction of organizational size

3. Restrictions on holding risk assets and disposals of assets

4. Restrictions on the level of deposit interest rates

5. Divestitures of subsidiaries

6. Demand on the replacement of directors

7. Partial suspension of business

8. Supposed mergers, entries into financial holding companies (hereinafter, "FHC") as subsidiaries under the FHC Act (including cases of being subsidiaries after establishing the FHC independently or jointly with other financial institutions), acquisitions by third parties, or transfers of all or parts of businesses

9. Matters under Article 34 paragraph (2)

§36. Management Improvement Order

(1) The FSC must, in case a financial institution is applicable under any one of the following subparagraphs, order such a financial institution to take necessary measures within a timetable it prescribes, and the Governor must check within two months the performance of, and compliance with, the implementation after receiving an implementation plan reflecting the contents of such measures within that timetable set by the FSC.

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

2. Where the ratio of equity capital to risk-weighted assets provided under Article 26 is less than 2%. <Amended September 23, 2002>

3. When the normal operation of a financial institution already subject to the management improvement requirement under Article 35 paragraph (1) seems to be in a difficult situation because such a financial institutions does not, or can hardly, implement material matters of its management improvement plan and because the financial institution has failed to implement them even though urged to do under Article 39 paragraph (6).

(2) The necessary measures under paragraph (1) mean those applicable under all or parts of the following subparagraphs. However, such measures as the suspension of all businesses, the assignment of all businesses, the transfer of all contracts and the retirement of all stocks shall be limited to the case where such a financial institution is an ailing financial institution under paragraph (1) subparagraph 1, or where it falls under the standards mentioned in paragraph (1) subparagraph 2 and is certain to damage either the soundness of the credit system or the interest of depositors.

1. Retirements of all or parts of the issued stocks

2. Suspension of duties against directors and new appointments of administrators;

3. Mergers or entries into financial holding companies as subsidiaries (including the cases of being subsidiaries after establishing the FHC independently or jointly with other financial institutions);

4. Transfers of all or parts of businesses;

5. Acquisition of financial institutions by a third party;

6. Suspension of business within six months;

7. Transfers of all or parts of contracts; and

8. Matters under Article 35 paragraph (2).

(3) Notwithstanding paragraph (1), the FSC may order a financial institution to increase or decrease its capital against a financial institution already subject to the management improvement recommendation under Article 34 paragraph (1) or management improvement requirement under Article 35 paragraph (1), for which the Government or the Korea Deposit Insurance Corporation decides to make capital investments because such a financial institution seems not able to normally conduct businesses without the support of outside funds.

§37. Postponement of Prompt Corrective Action

Supervisors may postpone a prompt corrective action for a specified period of time when recognizing that a financial institution under Article 34 paragraph (1), Article 35 paragraph (1) and any subparagraph of Article 36 paragraph (1) has clearly met the standards through the increase in its capital or sale of its assets, that it will probably satisfy such standards within a short period of time, or that there are some reasons corresponding thereto.

§38. Emergency Measures

(1) The FSC may, when recognizing that a financial institution applicable under one of the following subparagraphs may seriously risk depositors' benefits, take emergency measures for removing the risk. However, in the event being unable to convene the FSC, its Chairman may first take the necessary emergency measures, and then report the details of measures by convening the FSC without delay.

1. Shortage of reserves and assets for future payment to depositors, default of external debts, and other similar situations due to the rapid deterioration of liquidity.

2. Cases where it is impossible and difficult to conduct normal businesses due to the unexpected accidents such as shutdown, suspension of business, bank run, and labor disputes, etc.

3. Cases where bankruptcy or insolvency is highly expected.

(2) Necessary emergency measures under paragraph (1) refer to those applicable under all or parts of the following subparagraphs.

1. Restriction on taking deposits and granting credits

2. Suspension of payment to all or parts of deposits

3. Prohibition of debt-repayment

4. Disposal of assets

§39. Submission and Evaluation of Management Improvement Plan

(1) A financial institution subject to the management improvement recommendation or management improvement requirement under Articles 34 and 35 must submit its plan, consistent with the management improvement recommendation or the management improvement requirement (hereinafter, "management improvement plan") within two months after getting such an action. <Amended on February 7, 2001>

(2) Decision to approve a plan submitted pursuant to the provisions of Article 34 paragraph (1) shall be made by the Governor, whereas decision concerning a plan submitted pursuant to Article 35 paragraph (1) shall be made by the FSC within one month from its successful submission. If deliberation of the Management Assessment Committee pursuant to paragraph (3) is delayed, however, approval decision may go beyond not exceeding fifteen days.

(3) For the issuance of a management improvement recommendation, requirement, or order pursuant to Articles 34 and 35, the Governor shall receive a review of the Management Assessment Committee comprised of outside professionals in advance prior to making an approval decision pursuant to the provisions under paragraph (2). This, however, shall not apply in the event of emergency or deliberation deemed unnecessary by the Governor.

(4) When regarding the plan submitted by a financial institution pursuant to Article 34 paragraph (1) as unfeasible, the Governor shall disapprove it. In this case, the FSC must require all or parts of the measures under Article 35 paragraph (2) and finally decide whether it approves or not after making the financial institution submit the plan reflecting the contents of measures concerned within a specified time period.

(5) When the Governor determines that the plan submitted by a financial institution pursuant to paragraph (4) or Article 35 paragraph (1) is not feasible, he should disapprove it. In this case, the FSC must require all or parts of measures mentioned in Article 35 paragraph (2) and require the financial institution 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 part s of measures under Article 36 paragraph (2) to be implemented.

(6) A financial institution, which has obtained the approval of a management improvement plan pursuant to paragraph (2), must submit the quarterly implementation result 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, etc.

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

(8) Paragraphs (2) through (5) may be applicable in the event a financial institution has filed the management improvement plan after revising the important matters thereof according to paragraph (6).

(9) Paragraphs (2) through (8) may be applicable in the event a financial institution has filed a plan reflecting the management improvement order pursuant to Article 36 paragraph (1).

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

§40. Implementation Period of Management Improvement Plan

(1) The period for implementing the management improvement plan by a financial institution subject to the management improvement recommendation under Article 34 shall be within one year from the approval date.

(2) The period for implementing the management improvement plan by a financial institution subject to the management improvement requirement under Article 35 shall be within one year and six months from the approval date. In this case where the financial institution subject to the management improvement recommendation under Article 34 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 financial institution is urged by the Governor to implement the plan within a specified period of time pursuant to Article 39 paragraph (6), the period mentioned in paragraphs (1) and (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 financial institution subject to the management improvement recommendation, requirement, or order pursuant to Articles 34 through 36 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 financial institution subject to the management improvement recommendation, requirement, or order pursuant to Articles 34 through 36 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 financial institution of the completion of the measures concerned. In the event its management conditions fall under Article 34 paragraph (1), Article 35 paragraph (1) or Article 36 paragraph (1), the proper authority must take an additional measure such as management improvement recommendation, requirement, or order in accordance with the same articles.

§41. Management Disclosure

(1) Financial institutions must disclose matters prescribed under each of the following subparagraphs within three months from the settlement date, pursuant to Article 51 of the Act. However, disclosure on the result of each quarterly settlement shall be made within two months from the settlement date.

1. Matters on organization and manpower

2. Matters on finance, profit and loss

3. Matters on supply and use of funds

4. Matters on management indicators regarding soundness, profitability, productivity, and etc.

5. Matters which influence bank management such as management policy, risk management, etc..

(2) The specifics of items and methods for the disclosure of the matters prescribed under paragraph (1) shall be complied with the Uniform Management Disclosure Standards of Financial Business determined by the Chairman of the Korea Association of Banks.

(3) A financial institution must disclose the relevant contents, in the event the soundness of its management either has been damaged or is likely to be damaged due to cases applicable under the following subparagraphs.

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

2. Where measures on the management improvement recommendation, etc. are imposed by Articles 34 through 38.

3. Where the Won currency liquidity ratio stipulated under Article 26 paragraph (1) subparagraph 2 has been violated; <Added September 23, 2002>

(4) The subjects, contents, methods, time, etc. of the disclosure under paragraph (3) shall be determined by the Governor.

(5) In the event a financial institution makes disclosure of matters prescribed under paragraphs (1) through (3) without due diligence through false statement(s) or omission(s) of material facts of information, the Governor may require the financial institution of re-disclosure(s) or correction(s).

(6) Financial institutions must report the matters under the following subparagraphs to the Regular General Meeting of the Shareholders.

1. Non-performing loans in the pertinent accounting year;

2. Companies with an increased non-performing loans in the pertinent accounting year (KRW 2 billion won or more for nationwide commercial banks, 1 billion won or more for regional banks);

3. New companies whose loan or guarantee amounts are KRW 10billion or more with a debt rescheduling in the pertinent accounting year and details of the debt-rescheduling;

4. Details of contribution amounts in the pertinent accounting year; and

5. Result of management evaluation concerning the business performance and financial status of subsidiaries.

Section 3.

Valuation and Calculation of Assets and Liabilities for Determining Insolvent Financial Institutions

§42. Financial Institutions Subject to Valuation

Financial institutions subject to the valuation and calculation of assets and liabilities for the determination of an insolvent financial institution  pursuant to Article 2 subparagraph 3 of the Act on Structural Improvement of Financial Industry shall be those applicable under any one of the following subparagraphs.

1. A financial institution whose asset soundness has drastically deteriorated due to the occurrence of major financial accidents or large non-performing loans and which the Governor adjudges that its liabilities may exceed its assets;

2. A financial institution whose ratio of equity capital to risk weighted assets under Article 26 falls below 4/100; and

3. A financial institution in receipt of fifth grade (risky) for the criteria prescribed by the Governor following the management performance evaluation pursuant to Article 33.

§43. Scope of Valuation

(1) In principle, each account title of assets and liabilities on the balance sheet (including trust accounts) of a financial institution at the end of the latest month shall be valued and calculated pursuant to Article 42, however, the subparagraphs applicable under one of the followings shall be excluded from the valuation and calculation.

1. Reserves for adjusting asset values (referring to loan loss provisioning, reserves for depreciation, other allowances); and

2. Assets and liabilities of trust accounts without principal preservation agreements.

(2) With respect to annotations in the balance sheet(s), the items in the following subparagraphs shall be subject to valuation and calculation.

1. Payment guarantees;

2. Credit extension agreement; and

3. Sales of bonds purchased under repurchase agreement.

§44. Valuation Criteria

(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. For account headings where the book value reflects the real value, the valuation and calculation shall be based upon the book value;

2. For account headings where the book value fails to reflect the real value, the  valuation and calculation shall be based upon the market value or the real value subtracted by the estimated amount of loss; and

3. Annotations shall be recognized as liabilities after calculating the estimated amount of loss, if applicable.

(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.

§45. Valuation Procedures.

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

(2) In the event an MBC is applicable under Article 31 subparagraph 2, the Governor shall conduct the valuation and calculation of its assets and liabilities in every quarter until the ratio of equity capital against the risk-weighted assets reaches 4/100.

Section 4.

Issuance of Bonds

§46. [Deleted September 23, 2002]

§47. Sanctions

In the event a financial institution has issued financial bonds in violation of Article 19 of the Enforcement Decree, the Governor may take such actions as suspending debt issuance and reducing the issuance ceiling, among others, against it. <Amended September 23, 2002>

§48. Reporting

(1) Financial institutions shall report the result of financial bonds issuance to the Governor at the end of June and December every year.

(2) The Governor shall report to the FSC the result of financial bonds issuance and sanctions at the end of June and December every year.

Section 5.

Subsidiaries and Child Bank

§49. Business Categories of Subsidiaries

"Business categories determined by the FSC" under Article 37 paragraph (2) of the Act mean those applicable under any one of the following subparagraphs.

1. The Banking Act (including foreign statutes); <Amended September 23, 2002>

2. Long term credit financial business under the Long Term Credit Bank Act;

3. Securities business and investment advisory service under the Securities Exchange Act;

4. Insurance business under the Insurance Business Act;

5. Merchant banking business under the Merchant Banking Corporation Act;

6. Trust business under the Trust Business Act;

7. Securities investment trust company business under the Securities Investment Trust Business Act;

8. Mutual savings and banking business as under the Mutual Savings Bank Act; <Amended September 23, 2002>

9. Credit-specialized financial business under the Credit-Specialized Financial Business Act;

10. Credit information business under the Act on Utilization and Protection of Credit Information;

11. Venture capital business under the Act on Establishment Support for Small and Medium Enterprises;

12. Futures trading business under the Futures Trading Act;

13. Information Technology business and finance research business directly related to conducting financial business;

14. Factoring business;

15. Special Purpose Company business and asset management business under the Act on Asset Securitization;

16. Mortgage backed securitization company business under the Act on Mortgage-Backed Securitization Company;

17. Corporate Restructuring Company business under the Industrial Development Act; and

18. Securities investment company business, asset management company business and fund administration company business under the Act on Securities Investment Company.

19. Equity capital raising by financial institution (restricted to holding stocks issued with voting rights or all the shares, with the purposes of establishment for raising equity capital)  <Added November 13, 2002>

§50. Requirements for Investment in Subsidiaries

(1) "The requirements determined by the FSC" under Article 21 of the Decree mean those applicable under one of the following subparagraphs.

1. The management performance of the financial institution concerned shall be Grade 1, 2, or 3 as a result of the recent evaluation conducted pursuant to Article 33, meeting the requirements stipulated under the following items; <Amended September 23, 2002>

a. The ratio of equity capital to risk-weighted assets as of the end of previous year shall  be at least  8%; and <Amended September 23, 2002>

b. The Won currency  liquidity  ratio as of the end of previous year shall be at least 100%.

2. The management performance of the existing subsidiaries invested in by the financial institution concerned (excluding those approved pursuant to Article 51) shall be Grade 1, 2, or 3 as a result of the evaluation conducted as of the latest accounting year. <Amended September 23, 2002>

3. The aggregate amount of investment in subsidiaries on the basis of acquisition value shall be within 30/100 of the equity capital of the financial institution concerned. However, statutory investments and other investments regarded by the FSC unavoidable shall be exceptions.

(2) Notwithstanding paragraph (1), cases applicable under any one of the following subparagraphs shall be regarded as satisfactory under paragraph (1) subparagraph 1 and 2.

1. When the subsidiary stocks are issued through the capitalization of either provisions or asset-revaluation reserves.

2. When the subsidiary stocks are issued as profit dividends

(3) In calculating the aggregate amounts of investment in subsidiaries mentioned in paragraph (1) subparagraph 3, the investment from the trust accounts having a principal preservation agreement shall be included.

(4) The result of the evaluation of management performance of subsidiaries under paragraph (1) subparagraph 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), and the detailed matters on the evaluation of management performance shall be determined by the Governor.

§51. Approval of Investment in Non-Financial Subsidiaries

(1) In the event a financial institution intends to own stocks exceeding 15/100 of the outstanding stocks of a company not belonging to business categories (hereinafter, "a non-financial company") under Article 49 pursuant to Article 37 paragraph (2) of the Act, (including cases where a financial institution with stocks more than 15/100 of the issued stocks of a company intends to own more stocks), it has to submit an application for approval to the Governor thirty days before the deadline as mandated by the Governor. However, when the stock limit mentioned above has been exceeded due to a fluctuation in the amounts of issued stocks, etc., that is when the financial institution concerned has not acquired any more stocks, it may apply for approval a posteriori within fifteen days from the date of a cause.

(2) Notwithstanding Article 50 paragraph (1), in the event a financial institution applicable under one of the following subparagraphs applies for approval in order to own stocks exceeding 15/100 of the issued stocks of a non-financial company pursuant to paragraph (1), it shall be regarded as satisfactory under Article 50 paragraph (1).

1. When the ratio of equity capital to risk-weighted assets under Article 26 is 8/100 or more; and

2. When the management improvement plan has been approved pursuant to Article 39 paragraph (2), even though the ratio of equity capital to risk-weighted assets under Article 26 is less than 8/100.

(3) Approval decision making authority shall be delegated to the Governor except where a financial institution intends to own stocks in a non-financial institution pursuant to paragraph (1), and where the non-financial institution is an affiliate company of the top five interlinked business groups ranked based upon total assets among those designated under restriction of cross investments and debt guarantees pursuant to the provisions of Article 14 of the Monopoly Regulation and Fair Trade Act and Article 17 of its Decree, the results of which shall be reported by the Governor to the FSC on a quarterly basis.

§52. Ceiling on Credit Extension to Subsidiaries

(1) "The ceiling on credits extended to subsidiaries determined by the FSC" under Article 37 paragraph (3) subparagraph 1 of the Act means 10/100 of the equity capital of a financial institution for each subsidiary and 20/100 of the equity capital of the financial institution concerned for subsidiaries all together.

(2) Even though a financial institution has not extended credit any more but exceeds the ceiling due to any of the following subparagraphs, it shall submit a plan adjusting such excess ratio to the Governor within one month from the exceeding date.

1. Increase in credit amounts converted into won due to the change in exchange rate

2. Reduction in equity capital of the financial institution

3. Mergers between subsidiaries or business assignments

4. Occurrence of guarantee payments in subrogation

5. Increase in corporate bond guarantees due to the rise in interest rate

6. Changes in Account titles on the balance sheets of financial institutions

7. Change in the scope of credit extension under Article 3

8. Possession of stocks exceeding 15/100 of the outstanding voting stocks in total under Article 51 paragraph (1)

(3) Financial institutions must follow reasonable conditions in their transactions with subsidiaries, and they must not act in any manner of the following subparagraphs.

1. Action leading to preferential treatment for subsidiaries without justifiable reasons.

2. Action bearing the expenses of subsidiaries in lieu without justifiable reasons.

3. Action violating independence and soundness of subsidiaries' management

4. Action influencing subsidiaries and customers on their transactions, thereby bringing about the conflict of interests problems

5. Action exchanging information of customers without consents, which is obtainable through a normal business relationship

(4) The Governor may take necessary measures to restrict the transactions between a financial institution and its subsidiaries, within the minimum extent necessary for the sound management of the financial institution.

§52-2. Child Bank's Ownership of the Stocks Issued by Parent Bank <Added September 23, 2002>

(1) In the event a child bank owns the stocks issued by its parent bank by reason of any of the provisions under Article 21 paragraph (3) of the Enforcement Decree, it shall report to the Governor in accordance with the stipulations of the Governor.

(2) In the event the child bank intends to extend the term of disposition for the stocks issued by its parent bank pursuant to the proviso of Article 21 paragraph (4) of the Enforcement Decree, it shall apply for such an extension with the Financial Supervisory Commission via the Governor.

§52-3. Child Bank's Credit Extensions to Parent Bank <Added September 23, 2002>

(1) In the event a child bank exceeds the ceiling stipulated under the provisions of Article 21 paragraph (5) of the Enforcement Decree by reason of any of the provisions under Article 21 paragraph (6) of the Enforcement Decree, it shall report to the Governor within one month from the date of the excess in accordance with the stipulations of the Governor.  This provision shall likewisely apply to the extension provided in accordance with the provisions of paragraph (3).

(2) The Governor shall report to the FSC on the status of excess in the credit extension ceiling of the child bank in accordance with paragraph (1) on a quarterly basis.

(3) "Where it is recognized to be inextricable in view of the credit extension scale of the child bank" in the proviso of Article 21 paragraph (5) of the Enforcement Decree means each of the following subparagraphs;

1. Where collection is not feasible within the term as the credits extended have not matured;

2. Where causes provided under Article 20-5 paragraph (4) subparagraph 1 or 2 of the Enforcement Decree continue for a long duration, and where management of the parent bank in receipt of the credit extension may adversely be affected by collection; and

3. Where the excess of the extension is applicable under subparagraphs 1 and 2, and where the Governor recognizes that the child bank's asset quality would not significantly be affected even with the continuance of the excess.

(4) Extension of the excess pursuant to the proviso of Article 21 paragraph (5) of the Enforcement Decree shall be one year or less.

§52-4. Appropriate Security and Collateral Standards <Added September 23, 2002>

(1) "Ratios determined by the Financial Supervisory Commission depending upon the type of security or collateral" means each of the following subparagraphs;

1. For deposits and installment savings, Government and the Bank of Korea bonds, bonds guaranteed by the Government and the Bank of Korea, and bonds secured by the securities issued by, or guaranteed by, the Government and the Bank of Korea : 100%

2. Self governing municipalities established by the Self Governing Municipality Act, regional public enterprises established by the Regional Public Enterprise Act (restricted to the institutions whose losses may be cushioned against systematically by the Government or self governing municipalities in the event of any such losses), bonds of the investing institutions or the like established by the State Investment Institution Management Act (hereinafter, "the public institutions"), bonds guaranteed by the public institutions, and bonds secured by the securities issued by, or secured by, the public institutions, among others : 110%

3. Assets other than those provided under subparagraphs 1 and 2 : 130%

(2) "Where requirements by the Financial Supervisory Commission are met, such as credit extensions needed for restructuring the child bank and its parents bank in question" means each of the following subparagraphs;

1. Credit extensions made prior to the bank becoming a child of the parent bank, provided that the provisions of paragraph (1) shall be fully satisfied within two years from the date it became a child;

2. Credit extensions temporarily made based upon the assets sought after for collection purposes;

3. Short term capital transactions conducted within conventional scope via an intermediary established by the Merchant Banking Act; and

4. Loans extended within conventional scope with the condition of debt servicing on the same day.

(3) Where the ratio falls below those provided under paragraph (1) as a result of depreciation and amortization of the assets secured pursuant to the provisions of paragraph (1), physical damages, and reduced market value, among others, it shall be in congruence within the required ratio within one month from the date of the shortfall, unless the term is extended by the Governor for any of the following reasons;

1. Changes in the scope of credit extension; and

2. Shortage of security or collateral without fault of the parent bank, among others, by reason of inextricable circumstances, such as rapid changes in the economic conditions.

(4) Notwithstanding the provisions of paragraph (1), any asset applicable under any of the following subparagraphs shall not be secured for a security or collateral;

1. Asset stipulated under Article 21 paragraph (9) of the Enforcement Decree; and

2. Bonds of the child and parent banks in question, bonds guaranteed by the child and parent banks, and bonds secured by the securities guaranteed by the child and parent banks.

§52-5. Standards for Bad Assets <Added September 23, 2002>

(1) "Assets determined by the Financial Supervisory Commission" under Article 21 paragraph (9) of the Enforcement Decree means the assets classified as "precautionary" in accordance with the provisions of Article 27.

(2) The provisions of Article 52 paragraph (3) shall apply to transactions by and between child and parent banks in addition to their conducts

§53. Loans Extended to Executive Directors and Employees of the Subsidiaries and Parent Bank

(1) "Petty loans determined by the FSC" under Article 37 paragraph (3) subparagraph 3 of the Act and Article 21 paragraph (7) subparagraph 2 of the Enforcement Decree means the loans stipulated under Article 56 paragraph (1) subparagraphs 1 and 2; provided that the loan terms shall be identical to those applied to general customers. <Amended September 23, 2002>

(2) When calculating loans under paragraph (1), Article 56 paragraph (2) shall be applied.

§54. Approval of Holding Stocks in Other Companies

In the event a financial institution and its affiliated financial institutions (meaning financial institutions under Article 2 subparagraph 1 of the Act on Structural Improvement of Financial Industry) belonging to the same business group (meaning a business group under Article 2 subparagraph 2 of the Act on Monopoly Regulation and Fair Trade), intend to own stocks of other companies (including share) pursuant to Article 24 paragraph (1) of the Act on Structural Improvement of Financial Industry, they shall apply for an approval to the FSC via the Governor in the same manner as designated by the Governor. <Amended September 23, 2002>

Section 6.

Engagement in Prohibited Business

§55. Standards of Real Estate Investment for Business Purposes

(1) "Real estates for business purposes" under Article 38 subparagraph 3 of the Act mean the estates under each of the following subparagraphs.

1. Business offices and representative offices

2. Financial institutions-owning houses for their employees

3. Lodging Facilities

4. Training institutes

5. Athletics and recreational facilities

6. Other estates mandated by the Governor

(2) To extend the term for holding real estates for business purposes in excess of the ceiling pursuant to the proviso of Article 21-2 paragraph (2) of the Enforcement Decree, the application for such an extension shall be made with the FSC via the Governor. <Added September 23, 2002>

§56. Loans to Directors and Employees of Financial Institutions

(1) "Petty loans determined by the FSC" under Article 38 paragraph 8 of the Act mean those under the following subparagraphs.

1. General loans: Less than 20 million won (including benefits)

2. Loans related to home (including general loans): Less than fifty million won

3. Loans for unexpected financial accidents (including general loans and housing loans): Less than 60 million won

(2) The calculation of the loans under paragraph (1) and other necessary matters shall be determined by the Governor.

§57. [Deleted September 23, 2002]

§58. Disposal of Non-Operational Assets

(1) A financial institution must dispose of its assets, which are prohibited from holding by the Act or which are acquired through the exercises of security rights such as mortgage rights, etc. (hereinafter, "non-operational assets"), within one year from the date when such holdings fail to meet the Act. However, when a financial institution has made a report on the postponement of their disposals due to the public sale or suspension thereof, it must dispose of such assets within one year from the reporting date.

(2) The Governor shall settle any questions arising from non-operational assets.

(3) When assets are turned out to be non-operational pursuant to paragraph (1), financial institutions must report them to the Governor without delay.

(4) Financial institutions must provide internal guidelines concerning the sales procedure, sales methods, etc. for enhancing fairness when disposing of non- operational assets.

§59. Exemption of Ceiling on Securities Investment

In the event a financial institution acquires the shares of other corporations under each of the following subparagraphs through debt-equity swaps pursuant to Article 11 paragraph (6) subparagraph 1 of the Act on Structural Improvement of Financial Industry, the acquisition of shares is not considered impermissible under the provisions of Article 38 subparagraph 1 of the Act.

1. Corporations in the course of the reorganization procedure under the Company Reorganization Act;

2. Corporations subject to the composition procedure under the Composition Act;

3. Corporations undergoing a workout process pursuant to agreement(s) between financial institution(s) to facilitate corporate restructuring;

4. Corporations in the course of the industrial rationalization process under the Act Concerning the Restriction on Exceptions to Taxation; and

5. Corporations in the course of normalization in collaboration with all the financial institutions.

§59-2. Special Cases of Asset Management <Added January 3, 2003>

(1) To acquire beneficiary certificates of a securities investment trust or stocks of a securities investment company for the purposes of consigning asset management to a trust company established under the Securities Investment Trust Act or an asset management company established under the Securities Investment Company Act (hereinafter, "the asset manager"), each of the following subparagraphs shall be complied with;

1. That it shall be a securities investment trust company established under Article 33 paragraph (2) of the Securities Investment Trust Act, or a securities investment company established under Article 79 paragraph (1) of the Securities Investment Company Act, whose beneficiary or shareholder shall each be a single financial institution, either a securities investment trust, or a securities investment company (hereinafter, "the privately placed single fund");

2. That the asset management guidelines specifying the purpose of asset management, operating strategy such as major investment targets, investment restrictions, performance assessment, and termination of contract, among others, shall be observed; and

3. That the following items shall be included in the internal control standards under Article 23-3 paragraph (1) of the Act and Article 17-2 paragraph (1) of the Enforcement Decree;

a. Matters pertaining to the appointment and dismissal of the asset manager;

b. Matters pertaining to the asset manager's asset management performance and results;

c. Matters pertaining to the organization for the purposes of monitoring the propriety of the asset management by the asset manager;

d. Matters pertaining to developing a system for integrating and managing the assets invested by the financial institution, i.e., securities, and the privately placed single funds; and

e. Other matters needed for the sound asset management by the financial institution.

(2) With respect to a securities investment trust or a securities investment company other than the privately placed single fund, whose beneficiary or shareholder is a single financial institution (hereinafter, "the publicly placed single fund"), the provisions of paragraph (1) subparagraphs 2 and 3 shall be applied mutatis mutandis.

CHAPTER VI.

SUPERVISION ON SOUNDNESS OF FOREIGN EXCHANGE BUSINESS

Section 1.

Registration of A Foreign Exchange Business Institution

§60. Foreign Exchange Business Institution

"Foreign Exchange Business Institution" in this Chapter means an institution that has registered foreign exchange business pursuant to Article 8 paragraph (1) of the Foreign Exchange Transactions Act.

§61. Requirements for Registration

(1) "Standards of financial soundness applicable to financial institutions   determined by the FSC" under Article 13 paragraph (2) subparagraph 1 of the enforcement decree of the Foreign Exchange Transactions Act shall be as the following subparagraphs:

1. Minimum capital standard under Article 9 of the Banking Act;

2. Equity capital standard under Article 26;

(2) When the Minister of Finance and Economy requests the confirmation of fulfillments of the registration requirement under Article 13 paragraph (3) of Enforcement Decree on Foreign Exchange Transaction Act, the Governor shall confirm it in accordance with the standards mentioned in paragraph (1).

§62. Modification of Registration

(1) When intending to establish or close down its domestic offices conducting foreign exchange business or to change its addresses pursuant to Article 16 paragraph (1) of the decree of the Foreign Exchange Transactions Act, any institution conducting foreign exchange business shall report to the Governor at least seven days before the date thereof.

(2) The details of report under paragraph (1) shall be determined by the Governor.

Section 2.

Management of Soundness of Foreign Exchange Business

§63. Exchange Rate Risk Management

(1) Pursuant to Article 21 subparagraph 2 of the decree of the Foreign Exchange Transactions Act, a foreign exchange business institution   shall confirm whether the limit on the overbought amounts and oversold amounts of the foreign exchange (hereinafter, "the limit on foreign exchange position") is well complied or not on the basis of balance every business day. However, foreign exchange position on Saturdays and holidays of the New York foreign exchange market shall be made on the basis of average balance aggregated with the foreign exchange position of the following business day.

(2) When in violation of the limit on foreign exchange position, a foreign exchange business institution shall report the fact to the Governor within three business days from the date of violation.

§64. Liquidity Risk Management

(1) A foreign exchange business institution shall manage its assets and liabilities denominated in foreign currency by classifying them based on each residual maturity under Article 21 subparagraph 4 of the enforcement Decree of the Foreign Exchange Transactions Act, and maintain the liquidity ratio in foreign currency under each of the following subparagraphs.

1. Ratio of assets within 3 months of residual maturity to liabilities within 3 months of residual maturity: 80/100 or above; and

2. Ratios of maturity mismatch between assets and liabilities in foreign currency:

a. Ratio of assets exceeding liabilities to total assets, when the residual maturity is due less than seven days: 0/100 or above

b. Ratio of liabilities exceeding assets to total assets, when the residual maturity is due less than one month: 10/100 or below

(2) The method of classifying residual maturity, the scope of assets and liabilities, and the method of ratio calculation under paragraph (1) shall be determined by the Governor.

§65. Management of Financial Resources for Medium and Long Term Loans in Foreign Currency

(1) When a foreign exchange business institution makes a foreign currency loan with maturity of 1 year or longer, 50/100 or more of such loan shall be covered by the foreign currency funds whose redemption periods are 1 year or longer pursuant to the provisions under Article 21 subparagraph 4 of the enforcement decree of the Foreign Exchange Transactions Act. However, this shall not apply to case where the outstanding amounts of foreign currency loans are less than US$50million.

(2) The scope of foreign currency loan and foreign currency procurement pursuant to paragraph (1) shall be determined by the Governor.

§66. Management of Offshore Financing

(1) In the event a foreign exchange business institution raises foreign currency funds from non-residents under Article 3 paragraph (1) subparagraph 13 of the Foreign Exchange Transactions Act (hereinafter, "non-residents") and operates them to non-residents (hereinafter, "offshore financing"), it shall establish offshore financing accounts, which shall be managed separately from other transactions.

(2) Fund raising and operating methods in the offshore financing accounts under paragraph (1) are as the following subparagraphs.

1. Fund raising

a. Borrowing(s) from non-residents or other offshore financing accounts;

b. Receiving deposit(s) from non-residents or other offshore financing accounts;

c. Issuing(s) foreign currency securities abroad; and

d. Selling bonds denominated in foreign currency to non-residents

2. Fund operation

a. Loans or deposits to non-residents and other offshore financing accounts; and

b. Underwriting or purchase of foreign currency securities issued by non - residents

§67. Internal Management of Financial Institution

(1) A foreign exchange business institution shall set up and operate its own internal management standards by types of such risks arising from foreign exchange transactions as country risk, large credit risk, financial derivatives transaction risk, market risk, and others pursuant to Article 21 subparagraph 6 of the Enforcement Decree of the Foreign Exchange Transactions Act.

(2) In the event a foreign exchange business institution intends to newly establish and alter its risk management standards mentioned in paragraph (1) or conduct foreign exchange transactions exceeding the standards, it shall refer the matter to its internal risk management committee for a resolution.

(3) The Governor shall establish exemplary standards for each type of the risks mentioned in paragraph (1), and may request correction of the risk management standards of a foreign exchange business institution in the event he judges that inappropriate.

§68. Preclusion

(1) The provisions under this Chapter shall not apply to consignment accounts such as trust accounts of a foreign exchange business institution.

(2) The provisions under Articles 64, 65, and 67 shall not apply to domestic branches of foreign banks.

Section 3.

Sanctions against Violation of the Regulation on Soundness of Foreign Exchange Business

§69. Sanctions against Violations of the Limit on Foreign Exchange Position

(1) The Governor may impose a sanction pursuant to the following subparagraphs in the event a foreign exchange business institution violates the limit on foreign exchange position under Article 63.

1. When violating once within the last one year from the date of violation: warning;

2. When violating twice within the last one year from the date of violation: reduction of the limit on foreign exchange position by daily average amount of violation multiplied by the number of days of violation.

(2) In the event a foreign exchange business institution falls under one of the following subparagraphs, the reduction of the limit on foreign exchange position under paragraph (1) subparagraph 2 becomes doubled.

1. When violating three times or more within the last one year from the date of violation;

2. When violating on purpose; and

3. When reporting under paragraph (1) has not been made within three business days from the first date of violation.

(3) When imposing a sanction pursuant to paragraphs (1) and (2), the Governor may exempt, postpone, or remove the sanctions in the event that reasons for exceeding the limit, such as a decrease in the equity capital, are deemed inextricable.

(4) The Governor may take such measures as a warning, a correction order or a reduction of limit on foreign exchange position for a specified period against a foreign exchange business institution, which does not comply with the reporting requirement or makes a false report .

§70 Sanctions against Violations of Liquidity Ratio in Foreign Currency

(1) In the event a foreign exchange business institution fails to achieve and maintain the ratios prescribed under Articles 64 and 65 twice or less during the past one year (four times or less during the last one year  with respect to the ratio prescribed under Article 64 paragraph (1) subparagraph 2 item a), it shall submit an explanatory statement and achievement plan to the Governor as mandated by the Governor.

(2) In the event a foreign exchange business institution fails to achieve and maintain the ratios prescribed under Articles 64 and 65 at least three times during the last one year, ascended ratios under the following subparagraphs shall be applied notwithstanding Articles 64 and 65.

1. Ratios prescribed under Article 64 paragraph (1) subparagraph 1

a. Failure to achieve and maintain three times during the last one year : 85/100 or above;

b. Failure to achieve and maintain four times during the last one year : 90/100 or above

2. Ratios prescribed under Article 64 paragraph (1) subparagraph 2 item b

a. Failure to achieve and maintain three times during the last one year: 5/100 or below

b. Failure to achieve and maintain four times during the last one year: 0/100 or below

3. Failure to achieve and maintain the ratio prescribed under Article 65 paragraph (1) three times during the last one year : 55/100 or above.

(3) When a foreign exchange business institution falls under the following subparagraph 1 through 3, it shall suspend new borrowings in foreign currency with maturity of less than three months (except the Call Money with maturity of less than 30 days), and when it falls under subparagraph 4, it shall suspend new loans in foreign currency with maturity of over one year until it achieves each ratio under the following subparagraphs.

1. Failure to achieve and maintain the ratios prescribed under each item of paragraph (2) subparagraph 1 or Article 64 paragraph (1) subparagraph 1 at least five times during the last one year: 90/100 or above.

2. Failure to achieve and maintain the ratio prescribed under Article 64 paragraph (1) subparagraph 2 item a at least five times during the last one year: 0/100 or above.

3. Failure to achieve and maintain the ratios prescribed under each item of paragraph (2) subparagraph 2 or Article 64 paragraph (1) subparagraph 2 item b at least five times during the last one year: 0/100 or below.

4. Failure to achieve and maintain the ratios prescribed under paragraph (2) subparagraph 3 or Article 65 paragraph (1) at least four times during the last one year: 55/100 or above.

(4) Even when a foreign exchange business institution is subject to the sanctions prescribed under paragraph (2) or (3), the Governor may recommend exemption, suspension or removal of sanctions in effect to the FSC in the event that the reason of violation is recognized as inextricable due to deterioration of economic and financial conditions at the inside and outside of country. In this case, sanction subject to exemption shall not be counted in the number of violation.

(5) In the event a foreign exchange business institution fails to achieve and maintain the ratios prescribed under Articles 64 and 65 at least twice during the last one year, the Governor may take additional necessary actions to the institution such as shortening the length of reporting cycle provided under Article 72.

§71. Status Report on Sanctions

When imposing sanctions against a foreign exchange business institution pursuant to Articles 69 and 70, the Governor shall report the status of sanctions to the FSC within one month after the end of every quarter.

Section 4.

Reporting on Foreign Exchange

§72. Reporting

A foreign exchange business institution shall report its current status of assets and liabilities in foreign currency, its current status of financing and operation of funds in foreign currency and other matters necessary for enforcement of this Chapter as mandated by the Governor.

CHAPTER VII.

CREDIT RISK MANAGEMENT

§73. Reasons for Exceeding the Ceiling of Credit Extensions

(1) When intending to exceed the ceiling of credit extensions pursuant to Article 20-3 paragraph (1) subparagraph 3 of the Decree, financial institutions must apply for approval to the FSC through the Governor. They are, however, viewed as having been recognized if they extend credit pursuant to a preexisting line of credit.

(2) "Cases recognized by the FSC" under Article 20-3 paragraph (2) subparagraph 5 mean those applicable under any of the following subparagraphs.

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

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

3. Occurrence of guarantees payments in subrogation

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

5. Changes of account titles on the balance sheets of financial institutions

6. Changes in the scope of credit extension under Article 3

§74. Reporting on Exceeding the Ceiling of Credit Extensions

(1) Financial institutions must report to the Governor within fifteen days from the date of exceeding ceiling under Article 35 paragraph (1), (3) or (4) of the Act due to reasons under Article 20-3 of the Decree or Article 73 of this regulation. This also applies to cases of delaying the periods beyond ceiling under Article 20-4 of the Decree or Article 75 of this regulation.

(2) The Governor must report matters regarding ceiling under paragraph (1) to the FSC every quarter.

(3) Details included in the report when exceeding the ceiling under paragraph (1) shall be designated by the Governor.

§75. Justifications for the Extended Periods of Ceiling

(1) "Cases recognized by the FSC" under Article 20-4 subparagraph 3 of the Decree mean those where legal proceedings for collection of debts against borrowers are under way.

(2) When financial institutions intend to extend periods pursuant to Article 20-4, the periods must be within one year.

§76. Management of Large Credit Exposure

(1) Financial institutions must control the excess of ceiling on the sum of large credit exposures under Article 35 paragraph (4) of the Act based on the balance at the end of every month, and report results to the Governor every quarter.

(2) Financial institutions must be equipped with internal guidelines for the operation and management of large credit exposures including following matters.

1. The establishment of an electronic system for monitoring conditions in large credit exposures at all times.

2. The self-inspection system for controlling large credit exposures.

(3) In the event where necessary for the effective operation and management of internal guidelines under paragraph (2) or where likely to occur ceiling violation due to the sudden increase in the sum of the large credit exposures, the Governor may require any necessary measures to restrict the excess of ceiling on the sum of large credit exposures.

(4) Any details concerning report necessary for the management of large credit exposures must be mandated by the Governor.

§77. [Deleted September 23, 2002]

§78. Principles for the Asset Management

(1) Financial institutions shall ensure that asset quality is maintained and secured as under each of the following subparagraphs; <Amended November 27, 2002>

1. Credit risk evaluation conducted in the strict manner by analyzing the borrower's risk characteristics, financial conditions, and debt servicing capability going forward;

2. Appropriate loan extension by reviewing and analyzing the borrower's purpose of applying for a loan, size of the fund needed, and the term required;

3. Prevention of the use of loan for purposes other than the intended by strict management of the loan extended;

4. Off-site monitoring of the borrower's credit and changes in his debt servicing capability, and any subsequent appropriate action; and

5. Prevention of loan concentration by industry and customer group for diversification purposes.

(2) The Governor may set specific standards on the credit analysis and ex post credit administration toward enhancing the soundness of asset management by the financial institutions. <Amended November 27, 2002>

§79. Main Debtor Groups

(1) The Governor shall designate business groups (hereinafter, "main debtor groups") and their affiliated companies, whose remaining balances of total credits extended from financial institutions as of the end of the preceding year against those from the year before the preceding year are 0.1% or larger, subject to notification to all financial institutions. Where a company appointed by the Governor in consideration of other affiliated companies within the inter-linked business group and of asset size, scale of influence exercised, and etc. (hereinafter, "lead company") is applicable under any one of the following subparagraphs, the group concerned may not be so designated or included.

1. A company under Article 17 paragraph (1) subparagraph 1 through 4 of the enforcement decree of the Act on Monopoly Regulation and Fair Trade.

2. A company subject to the corporate reorganization process under the Corporate Reorganization Act

3. A company subject to the composition process under the Composition Act

4. A company subject to the bankruptcy procedure under the Bankruptcy Act

5. A company subject to the receivership and management of banks

6. Joint management initiated by creditor financial institution (or creditor bank) pursuant to the Financial Institution Agreement for Corporate Restructuring Promotion (enacted June 25, 1998) and subsequent agreements, or the Corporate Restructuring Promotion Act.

(2) A financial institution under paragraph (1) means any one of the following subparagraphs.

1. A financial institution under the Banking Act;

2. Credit business department at the National Agricultural Cooperative Federation under the Act of Agricultural Cooperative Union;

3. Credit business department at the National Federation of Fisheries Cooperatives under the Fisheries Cooperatives Union Act;

4. The Korea Development Bank under the Korea Development Bank Act;

5. The Export-Import Bank of Korea under the Act on Export-Import Bank of Korea;

6. The Industrial Bank of Korea under the Act on Industrial Bank of Korea;

7. A merchant banking corporation under the Act of Merchant Financial Corporations; and

8. An insurance business company under the Insurance Business Act.

9. A financial company specializing in credit and loan business established under the Specialized Credit Financial Business Act

(3) Credit Extensions under paragraph (1) mean the following subparagraphs.

1. Credit extensions under the Appendix Table 2 toward the financial institutions under paragraph (2) subparagraphs 1 through 6.

2. Credit extensions under the Appendix Table 2 toward the financial institutions under (2) subparagraph 7.

3. Loans on the balance sheet (excluding loans under policy provisions), purchase of C.P., subscription of bonds issued by private placement for financial institutions under paragraph (2) subparagraph 8. However, this provision is not applicable to those where export insurance corporation, Korea Credit Guarantee Fund, Technology Credit Guarantee Fund and Industry-Based Credit Guarantee Fund, Government, local governments, the government-invested institution under the Act on the Basic Management Act of Government-Invested Institutions, guarantee the repayment of principal and interest.

4. Principal receivable among lease assets on the balance sheet, financial assets of new technology, financial assets on credit, machinery installment financing, privately placed corporate bonds and commercial papers for financial institutions under paragraph (2) subparagraph 9. However, this provision is not applicable to those where institutions prescribed under the provision of subparagraph 3 guarantee the repayment of principal and interest.

(4) Article 2 subparagraph 2 of the Act Concerning the Monopoly Regulation and Fair Trade shall apply to inter-linked business groups and their affiliated companies under paragraph (1).

(5) Details such as reporting on entry into - and exclusion from main debtor groups of a company shall be mandated by the Governor. In the event there is any delay for the entry without any justifications, the Governor may consult with main creditor banks and approve the entry of a company into main debtor groups.

§80. Selection and Change of the Main Creditor Banks

(1) Financial institutions must figure out main creditor banks in relation to main debtor groups and their affiliated companies (hereinafter, "main creditor banks") as prescribed by the Governor, and the main creditor banks of main debtor groups shall be the main creditor banks of the lead company.

(2) Main creditor bank(s) of the affiliated companies belonging to main debtor groups shall be determined by mutual consultation(s) between the main creditor bank of the relevant main debtor group and other creditor banks. The Governor, however, shall determine the main creditor bank(s) in case where consultations unavailable.

(3) Affiliated companies belonging to main debtor groups may change their main creditor bank(s) with the consent from their current main creditor bank(s). New main creditor banks shall report this change to the Governor.

(4) When necessary for the effective management of credit extension business, the Governor may change the main creditor bank(s) of affiliated companies belonging to the main debtor groups after considering the opinions of related financial institutions.

§81. Restriction on the Acquisition of Debt Guarantees by Affiliate Companies

(1) Financial institutions shall not make credit extension to a company belonging to same major debtor groups (excluding their subsidiaries abroad; hereinafter as such in this Article), after getting debt guarantees from other companies of the same major debt groups (hereinafter, debt guarantees) under Article 10-2 of the Monopoly Regulation and Fair Trade Act. Any renewals for the maturity extension of current debt guarantees, however, shall not be regarded as new debt guarantees.

(2) Credit extension under paragraph (1) means any of the following subparagraphs in the context of bank accounts and trust accounts.

1. Loans denominated in won;

2. Loans denominated in foreign currency;

3. Domestic banker's usance;

4. Payment guarantees in subrogation; and

5. Fixed payment guarantees.

(3) Main creditor banks shall develop plan(s) in accordance with the terms mandated by the Governor to resolve outstanding balance(s) on the debt guarantees of the affiliated companies under the same major debt groups at the time of selection, and shall report the performance thereof to the Governor by the twentieth day of the following month as of the end of every half year. <Amended September 23, 2002>

§82. Functions of Main Creditor Banks

(1) Main creditor banks shall comprehensively and effectively manage business information including credit information about main debtor groups or their affiliated companies. Financial institutions shall mutually cooperate and exchange such business information through main creditor banks.

(2) Main creditor bank(s) shall devise and implement settlement measures together with other creditor banks through establishment of the creditor bank consultation committee when the loans-to main debtor groups and their affiliated companies in charge-are in the possibility of becoming bad loans due to difficulties in their business.

(3) Main creditor bank(s) shall provide main debtor group(s) and affiliate(s) with management guidelines to improve financial structures.

(4) Main creditor bank(s), together with other creditor bank(s), shall take necessary action(s) in accordance with terms mandated by the Governor against corporation(s) unable to comply with measures for implementation under paragraph (3).

(5) The Governor may exempt application of the provisions under paragraphs (1) through (4) against corporation(s), when deemed necessary after considering the characteristics of the business categories for affiliate(s) belonging to main debtor groups.

§83. Prohibition of Departure from Korea Against Persons Causing Losses to Financial Institutions

(1) In the event any company as a counter-party to credit business transactions with financial institution(s) is expected to cause loss(es) of KRW 50 billion or more to financial institution(s) for such reasons as dishonor, bankruptcy, and impossibility of normal operation, financial institution(s), including credit guarantee institution(s), (hereinafter as such) may request the Government through the FSC to prohibit departure from Korea against such person(s) as necessary for securing claims applicable under each of the following subparagraphs.

1. Representative(s) with actual responsibility in management;

2. De facto owners controlling the company; and

4. Joint and several guarantor(s), whose guarantees amount to KRW 50 billion or more.

(2) The requesting period for the prohibition of departure from Korea under paragraph (1) shall be within six months. When necessary for the preservation of claims, however, the extension of such a prohibition period may be requested once in principle within six months.

(3) When person(s) subject to the prohibition of departure from Korea under paragraph (1) turn out to be under the following subparagraphs, financial institutions shall request the Government promptly through the FSC to remove such a prohibition.

1. When hidden assets are not discovered after thorough investigations;

2. When the additional measures of financial institutions to preserve claims are unrealistic;

3. When the procedures preserving claims through the acquisition and liquidation of related companies are completed; and

4. When the continuous prohibition of departure from Korea is recognized as unnecessary.

(4) The Governor may determine matters necessary for creditor banks' securing claims against person(s) causing loss(es) to the financial institutions concerned.

CHAPTER VIII.

PROTECTION OF THE RIGHTS AND INTERESTS OF CUSTOMERS OF FINANCIAL INSTITUTIONS AND PREVENTION OF FINANCIAL ACCIDENTS

§84. Standard Contract Terms and Conditions Subject to Application

Standard contract terms and conditions in this Chapter (hereinafter, "standard contract terms and conditions") mean any kinds of contracts, regardless of titles or forms, financial institution(s) have drafted in advance for concluding financial contracts with large number of customers. The provisions of this Chapter shall not, however, apply to cases related to the operation of concurrent businesses where relevant statutes prescribe separately.

§85. Criteria for Drafting and Application of Standard Contract Terms and Conditions

A financial institution shall draft and apply the standard contract terms and conditions according to criteria under each of the following subparagraphs.

1. That they shall be drafted in good faith;

2. That they shall protect the rights and interests of the customers of financial institutions to the utmost extent;

3. That they shall help maintain safeness and soundness of financial transactions; and

4. That they shall not violate such relevant statutes as the Act on Regulation of Standard Contract Terms and Conditions.

§86. Submission of Standard Contract Terms and Conditions.

(1) When a financial institution intends to draft or modify its standard terms and conditions of contract, it shall submit to the Governor the documents needed to understand them within nine days from the intended date of effect; provided that the submission may be made within ten days from the drafting or modification of the terms and conditions; <Amended September 23, 2002>

1. Modifying the terms to expand or reduce the user rights;

2. Drafting or modifying the terms identical to, or resembling, the contents of the terms reported to the Governor; and

3. Drafting or modifying the terms designated by the Governor, resulting in no harm to the user rights or obligations.

(2) The Governor shall review the standard contract terms and conditions submitted pursuant to paragraph (1) and may advise the financial institution concerned to modify the contents thereof when necessary for maintaining the soundness of financial transactions.

(3) Any financial institution advised to modify pursuant to paragraph (2) shall report to the Governor on whether it will accept or reject such advice.

(4) The Governor shall determine procedures for reporting on the drafting or modification of the standard contract terms and conditions and other matters needed. <Amended September 23, 2002>

(5) The Governor shall report to the FSC on the results of matters under paragraphs (2) and (3) on a quarterly basis.

§87. Reviewing Criteria

The Governor shall review as to whether the standard contract terms and conditions submitted by a financial institution pursuant to Article 86 paragraph (1) includes any clause under the following subparagraphs.

1. Clause(s) exempting legal responsibility due to the intentional or gross negligence of a financial institution;

2. Clause(s) restricting the extent of compensation for damages of a financial institution or shifting to customers risks imputable to the financial institution without any justifications;

3. Clause(s) unreasonably charging customers with liabilities such as excessive compensation for damages out of proportion to delays.;

4. Clause(s) excluding the right of rescission or cancellation allowed by statutes, or restricting the exercise thereof;

5. Clause(s) that may be detrimental to the interests of customers by granting to a financial institution the right of rescission or cancellation not stipulated by statutes or by making easy the exercise thereof;

6. Clause(s) authorizing a financial institution to unilaterally decide and change the terms of payment, obligations of customers, or other matters without justifications;

7. Clause(s) excluding or restricting customers' rights, such as the right to defend, the right to set off, and the right to subrogate without justifications.

8. Clause(s) depriving customers of time value granted without justifications;

9. Clause(s) unfairly restricting customers from making contracts with third parties;

10. Clause(s) unfairly detrimental to the interest of customers through unreasonable presumption with respect to the intent of financial institutions and customers;

11. Clause(s) unfairly detrimental to the interest of a guarantor or a collateral provider by imposing excessive obligations or ambiguous obligations; and

12. Other clause(s) violating such relevant statutes as the Act on the Regulation of Standard Contract Terms and Conditions.

§88. Prohibition Against Unsound Business Practices

A financial institution shall not conduct unsound business practices, such as unfair transaction practices, under any one of the following subparagraphs.

1. Such practices of compelling deposits against borrower's will in the course of credit extension as determined by the Governor.

2. Such practices unfairly infringing upon the rights and interests of financial customers, or disturbing the soundness of financial transactions as determined by the Governor.

§89. Public Disclosure of Financial Transaction Terms

(1) A financial institution shall precisely disclose its contract terms of financial transactions in order to protect the rights and interests of its customers.

(2) A financial institution shall not behave in any manner under the following subparagraphs when disclosing the contract terms under paragraph (1).

1. Express unsettled matter(s) as either being settled or not being readily understandable in relation to financial product transaction(s);

2. Express comparative advantages over other financial products in a misleading and vague manner, without providing any specific grounds; and

3. Employ terms which may give rise to misunderstanding or dispute.

(3) The Governor shall determine necessary matters, including the contract terms, transaction costs, etc. of financial transaction, which will be disclosed to the public.

§90. Prevention of Financial Accidents

Financial institutions shall establish and implement preventive measures against financial accidents appropriate for their situations, and matters necessary for the prevention shall be determined by the Governor.

CHAPTER IX.

EXCEPTIONS TO LONG-TERM CREDIT BANK AND OTHERS

§91. Exceptions to Long-Term Credit Bank

(1) In case where the Long-Term Credit Bank under the Long-Term Credit Bank Act (hereinafter, "Long-Term Credit Bank") applies for the modification of its articles of incorporation or the reduction of capital pursuant to Article 6 paragraph (1) of the Long-Term Credit Bank Act, a careful review shall be made whether such application meets the criteria under Article 7 or 8.

(2) When intending to engage in incidental businesses pursuant to Article 8 paragraph (1) subparagraph 11 of the Long-Term Credit Bank Act, the Long-Term Credit Bank shall apply for approval in such manner as mandated by the Governor.

(3) Unless provided otherwise herein this Regulation, the provisions of Articles 13 through 16-5, Articles 26 through 45, Article 47, Article 48, Articles 73 through 90 shall apply to the Long-Term Credit Bank. <Amended September 23, 2002>

§92. Exceptions to the Korea Development Bank

(1) The provisions of Articles 5 through 25, Article 26 paragraph (3), Article 32 paragraphs (3) through (5), Articles 33 through 40, Articles 42 through 48, Article 50, Article 51, Articles 52-2 through 52-5, Article 54, Article 59, Article 74, and Article 91 shall not apply to the Korea Development Bank (hereinafter, "the Development Bank"). <Amended September 23, 2002>

(2) With respect to the Development Bank, the liquidity ratio denominated in won under Article 26 paragraph (1) subparagraph 2 shall be 70/100 or above.

(3) Notwithstanding Article 29 paragraph (1), the Development Bank shall not accumulate reserves against loans to institutions applicable under the following subparagraphs, loans guaranteed by those institutions, and the secured amounts of loans through issued or guaranteed securities by those institutions.

1. Central government(s) or central bank(s) of the OECD member countries;

2. Local governments; and

3. Government-invested institutions under the Basic Act on Government - Invested Institution Management;

(4) Notwithstanding Article 41 paragraph (1), the Development Bank may publicly disclose matters in each subparagraph of the paragraph of the same Article within a month from the date of obtaining the approval of account settlement from the Minister of Finance and Economy, and details subject to public disclosure and methods shall be prescribed by the President of the National Banking Association after considering the purpose of establishment of the Development Bank and the characteristics in its business operation.

(5) "Aggregated amounts of investment" under the second clause of Article 35-6 paragraph (1) subparagraph 7 of the Korea Development Bank Act mean the calculated amounts on the basis of acquisition value, including investment from the trust accounts under the preservation of principal terms.

(6) When the Development Bank invests in its subsidiaries, such investment shall be reported to the Governor within seven days.

(7) [Deleted September 25, 2002]

(8) The subsidiaries in this Article (including the application of Articles 52 and 53 to the Development Bank) mean companies handling business classified by Article 49, with the Development Bank owning more than 15/100 of the outstanding voting stocks.

§93. Exceptions to the Industrial Bank of Korea

(1) The provisions of Articles 5 through 25, Article 26 paragraph (3), Article 32 paragraphs (3) through (5), Articles 33 through 37, Article 39, Article 40, Articles 42 through 48, Article 50, Article 51, Articles 52-2 through 52-5, Article 54, Article 59, Article 74, and Article 91 shall not apply to the Industrial Bank of Korea (hereinafter, "the Industrial Bank"). <Amended September 23, 2002>

(2) The FSC must report to the Minister of Finance and Economy when having taken the measures against the Industrial Bank pursuant to the provisions under Article 38.

(3) Unless prescribed otherwise in this Regulation, the provisions under Article 92 paragraphs (2) through (8) shall apply in respect of the Industrial Bank.

§94. Exceptions to the Export-Import Bank of Korea

(1) The provisions of Articles 5 through 25, Article 26 paragraph (1) subparagraph 2, Article 26 paragraph (3), Article 32 paragraphs (3) through (5), Articles 33 through 48, Article 50, Article 51, Article 52-2 through 52-5, proviso of Article 53 paragraph (1), Article 54, Article 59, Article 74, Articles 79 through 89, and Article 91 shall not apply to the Export-Import Bank of Korea (hereinafter, "the Export-Import Bank"). <Amended September 23, 2002>

(2) The Governor may postpone the requirement for amortization of certain, specific bad assets under Article 27 paragraph (7) of the Export-Import Bank when determining problems may arise in the diplomatic and commercial contexts.

(3) Unless prescribed otherwise in this Regulation, the provisions under Article 92 paragraph (3), and paragraphs (5) through (8) shall apply to the Export-Import Bank.

§95. Exceptions to the National Agricultural Cooperative Federation

(1) The provisions of Articles 5 through 12, Articles 14 through 25, Article 26 paragraph (3), Articles 33 through 37, Article 39, Article 40, Articles 42 though 48, Article 50, Article 51, Articles 52-2 through 52-5, Article 54, Article 59, and Article 91 shall not apply to the credit business of the National Agricultural Cooperative Federation (hereinafter, "the NACF"). <Amended September 23, 2002>

(2) When having taken measures against the NACF pursuant to Article 38, the FSC shall report to the Minister of Agriculture and Forestry without delay.

(3) "Financial business" under the provisions of Article 137 paragraph (3)p of the Agriculture Cooperative Union Act means the business type under Article 49, and "the aggregated amount of investment" means the amount calculated on the basis of acquisition value including the investment of trust accounts with the preservation of principal investment.

(4) When applying the provisions under Article 56 to the Agricultural Cooperative Union, the loans of agricultural policy fund to the employees of the Union shall be excluded.

(5) When applying the provisions under Article 38 to the Agricultural Cooperative Union, the real estate for business purposes under paragraphs (2) and (3) of the same Article shall be limited to the estate used in credit business sector. The estates not classified clearly according to each business sector, however, shall be allocated to the relevant credit business sector based upon reasonable standards.

(6) Unless prescribed otherwise in this Regulation, the provisions under Article 92 paragraph (2), the second clause of paragraph (4), paragraphs (6) through (8) shall apply to the NACF.

§96. Exceptions to the National Federation of Fisheries Cooperatives

(1) The provisions of Articles 5 through 12, Articles 14 through 25, Article 26 paragraph (3), Articles 33 through 37, Article 39, Article 40, Articles 42 through 48, Article 50, Article 51, Articles 52-2 through 52-5, Article 54, Article 59, and  Article 91 shall not apply to the National Federation of Fisheries Cooperatives (hereinafter, "the NFFC"). <Amended September 23, 2002>

(2) Unless prescribed otherwise in this Regulation, the provisions under Article 95 paragraphs (2) through (6) shall apply to the NACF.

§97. Evaluation of the Soundness of the Korea Development Bank, etc.

(1) The Governor shall evaluate the soundness of management through the examination of headquarters, overseas branches and overseas subsidiaries of the Development Bank, Industrial Bank, Export-Import Bank, NACF and the NFFC (hereinafter, "Development Bank and others"), and he may reflect its result on the supervision and examination business.

(2) The evaluation of soundness under paragraph (1) shall be classified into the five categories of first grade, second grade, third grade, fourth grade, and fifth grade.

(3) The subparagraphs of the soundness evaluation under paragraph (1) correspond to Appendix Table 4, and the detailed matters for other soundness evaluation shall be determined by the Governor.

(4) In the event the Development Bank and others are viewed as having the possible aggravation of prudential management ratio under Article 26 paragraph (1) or as having the management weaknesses as a result of soundness evaluation, the Governor may take such measures as requiring the submission of plan(s) or contract(s) for the management improvement of the Development Bank and others.

(5) In the event the Development Bank and others are applicable under any one of the following subparagraphs, the FSC may require measures necessary to be taken against the institutions concerned through consultations with the Minister(s) in charge.

1. When the equity capital ratio for risk-weighted assets set under Article 26 is 8/100 or less;

2. Where the overall rating is Grade 4 or 5 as a result of the soundness evaluation conducted pursuant to the provisions of paragraph (1), or where the overall rating is Grade 1, 2, or 3 and the asset quality is Grade 4 or 5; and <Amended September 23, 2002>

3. When it is certain to be below the standard under subparagraph 1 or 2 due to large financial accident or non-performing assets.

(6) The necessary measures pursuant to paragraph (5) refer to the measures corresponding to a part or all of the following subparagraphs. The measures under subparagraphs 10 and 11 are, however, applicable only to the NACF and NFFC.

1. Improvement on organizational management;

2. Restriction on fixed asset investment;

3. Disposal of non-performing assets;

4. Increase or reduction in capital;

5. Restriction on dividends;

6. Special loss provisioning;

7. Restrictions on holding risk assets and disposition of assets;

8. Restrictions on the level of deposit interest rates;

9. Reorganization of subsidiaries prescribed under Article 92 paragraph (8) (including the cases where applicable under the same provisions);

10. Matters prescribed under each subparagraph of Article 165 paragraph (1) of the Act on National Agricultural Cooperative Federation; and

11. Matters prescribed under each subparagraph of Article 152 paragraph (1) of the Act on National Federation Fisheries Cooperatives.

(7) The FSC may suspend the taking of measures for a specified period of time when the Development Bank, etc. have fallen below the standards under paragraph (5), but would most likely meet the standards through the increase in capital or asset divestitures, or as such may be realized within a short period of time, or when there are reasons of equivalence.

(8) Notwithstanding the provisions under Article 92 paragraph (1), Article 93 paragraph (1), Article 94 paragraph (1), Article 95 paragraph (1), and Article 96 paragraph (1), the submission of a compliance plan following the measures set under paragraph (5) and the compliance period of the same plan may be applicable under the provisions of Article 39 and Article 40.

§98. Submission of Business Report by the Development Bank, etc.

(1) The Development Bank and others shall submit to the Governor a report describing the business contents of every month in the format set in advance by the Governor by twentieth of the following month.

(2) A representative, a person in charge or its agent shall sign and seal the report made and submitted pursuant to the provisions under paragraph (1).

(3) The submission of report made pursuant to the provisions of paragraph (1) may be in the electronic document form utilizing the information and communication network (as under the Act Concerning the Promotion of the Use of Information and Communication Network and Information Protection). <Added September 23, 2002>

(4) The Development Bank, among others, shall submit information and materials required by the Governor for carrying out his duties. <Amended September 23, 2002>

CHAPTER X.

SUPPLEMENTARY PROVISIONS

§99. Assistance in Affairs

The Governor shall assist the business of the FSC in the following ways.

1. Declarations, applications, reports and others as such filed with the FSC;

2. Drafting of resolutions, reports and others;

3. Enforcement of regulations or resolutions of the FSC; and

4. Administration of the matters delegated and instructed by the FSC.

§100. Reporting

(1) The Governor shall report important matters related to the enforcement of this Regulation to the FSC.

(2) Financial institutions shall report matters necessary for the enforcement of this Regulation in such manner as determined by the Governor.

§101. [Deleted September 23, 2002]

Addenda

§1. Enforcement Date

This Regulation shall be effective on January 1, 1999. However, the annulment of paragraph (2) of Addenda (September 17, 1999) (exceptions to classification for the asset soundness regarding the companies subject to improvement operation) shall be put into effect from December 31, 2000, and the footnotes of relevant subparagraphs in loan administration among the non-qualitative evaluation subparagraphs of asset soundness evaluation sector under Appendix Table 4 shall be enforced from April 1, 2001.

§2. Interim Measures

(1) Notwithstanding the provisions of Article 40, the performance period granted during the management improvement recommendation or management improvement measures requirements shall apply to the financial institutions subject to the management improvement recommendation or management improvement request under the previous regulation in June 12, 1998.

(2) Financial institutions shall submit to the Governor the compliance report on the detailed plans prepared under subparagraph 5745 of the Statute, Article 2 of Addenda (May 2, 1999) and approved by the FSC by the twentieth day of the following month at the end of every quarter.

(3) Financial institutions extending credits in excess of ceiling pursuant to Article 52 paragraph (1) in May 24, 1999 shall meet the propriety under this Regulation until March 31, 2002, and shall report their performance of detailed plans for meeting the same propriety under this Regulation by the twentieth day of the following month at the end of every quarter.

(4) In the event the financial institutions, for whom the management improvement plan has been approved, have made a contract with the FSC concerning the management improvement plan in order to receive a financial support from the government and other entities of relevance, the management improvement plan is viewed as having been corrected following Article 39 paragraph (6) and (7).

(5) Notwithstanding the provisions under Article 52 paragraph (1), the credit limits against each subsidiary shall be 20/100 of equity capital in the case of the Development Bank, 15/100 of equity capital in the case of Industrial Bank, and the credit limits against all the subsidiaries shall be 40/100 of equity capital in the case of the Development Bank, 30/100 of equity capital in the case of Industrial Bank.

(6) In the event there is a loan exceeding the small amount of loans pursuant to Article 53 paragraph (1) after owing the shares exceeding 15/100 of the issued shares with the non-financial institutions' voting right prescribed in Article 53 paragraph (1), it must be appropriated to the provisions of the same Article and paragraph.

(7) The scope of small amount of loans pursuant to the provisions under Article 56 shall exclude the amount of loans from the Agricultural Cooperatives Union as under the previous Agricultural Cooperatives Union Act to the employees and directors of the Livestock Cooperatives Union as under the previous Livestock Union Act, and the amount of loans from the Livestock Cooperatives Union as under the previous Livestock Union Act to the employees and directors of the Agricultural Cooperatives Union as under the previous Agricultural Cooperatives Union Act.

§3. Applicable Period

(1) The provisions under Article 51 paragraph (2) shall become effective until June 30, 2001.

(2) The provisions under proviso of Article 73 paragraph (1) shall be effective until the end of 2002.

§4. Application of Statutes

"Act" or "Enforcement Decree", quoted when applying this Regulation to the Development Banks and others, shall be viewed as the statutes related to the institutions concerned.

§5. Exceptions for the Housing and Commercial Bank's Liquidity Ratio	Denominated in Won

[Deleted December 19, 2001]

§6. Examples of Application Concerning the Calculation of Subsidiaries'    Aggregated Amount of Investment

Notwithstanding the amendments of Article 92 paragraph (5) (including the cases where the same regulation is applied to), in the event of investing in the non-performing financial institutions determined by the Act Concerning the Structure Improvement of Financial Institutions for the stability of financial market before the performing date of this Regulation, such amount shall be excluded in calculating the aggregated amount of investment of the subsidiaries following the provisions under the same Article and paragraph.

Addenda

(July 2, 2001)

§1. Enforcement Date

This Regulation shall be effective on July 2, 2001. The amended provisions of Article 32 paragraph (2), however, shall become effective on October 1, 2001.

§2. Examples of Application Concerning the Capital B Funds' Recognition of Long-Term Loans of Head Office

Long term loans recognized as Capital B Funds by the headquarters pursuant to Article 10 paragraph (4) subparagraph 2 shall apply in respect of the funds borrowed for the very first time after this Regulation comes into force.

Addenda

(September 4, 2001)

§1  Effective Date

This Regulation shall be effective on September 30, 2001.

§2 Interim Regulation

Article 70 shall not be applied to whomever in violation of the amended provisions of Article 65 and its enforcement rules and regulations from the date of the promulgation of this Regulation until December 31, 2001.

Addendum

(December 19, 2001)

This Regulation shall be effective on January 1, 2002.

Addendum

(April 2, 2002)

This Regulation shall be effective on the date of promulgation. However, the amended provisions of <Table 4> shall be effective on June 1, 2002.

Addendum

(May 1, 2002)

This Regulation shall be effective on the date of promulgation.

Addenda

(September 23, 2002)

§1. Enforcement Date

This Regulation shall be effective on the date of promulgation.

§2. Interim Measures on the Acquisition of Stocks Issued by Large Shareholders

(1) The financial institution holding stocks issued by large shareholders in excess of the ceiling provided under the amended provisions of Article 16-4 paragraph (1) at the time of the enforcement of this Regulation, it shall meet the ceiling within one year from the date of the enforcement of this Regulation.

(2) Any financial institution applicable under the provisions of Article 6 of the Addenda of the amended Banking Act of the Code No. 6691 shall submit to the Governor a statement on shareholding and a plan for disposing of the stocks held in excess within one month from the date of the enforcement of this Regulation.

(3) To extend the term for disposing of the stocks issued by large shareholders pursuant to the proviso of Article 6 of the Addenda of the amended banking Act of the Code No. 6691, such an extension shall be applied for with the FSC via the Governor in accordance with the amended provisions of Article 16-4 paragraph (2).

§3. Applicable Cases of the Executive Directors' Qualifications

The amended provisions of Articles 17 through 19 shall apply to the nominees for executive directorship following the enforcement of this Regulation.

Addendum

(November 13, 2002)

This Regulation shall be effective on the date of promulgation; provided that the amended provision of the <Annexed Table 4> shall be in force starting January 1, 2003.

Addendum

(November 27, 2002)

This Regulation shall be effective on the date of promulgation.

Addendum

(December 18, 2002)

This Regulation shall enter into force on January 1, 2003.

Addenda

(January 3, 2003)

§1. Enforcement Date

This Regulation shall be effective on the date of promulgation.

§2. Applicable Cases

In the application of the amended provisions of Article 59-2 with respect to the privately or publicly placed single fund created prior to the enforcement of this Regulation, the amended provisions of Article 59-2 paragraph (1) subparagraph 2 shall apply to the beneficiary certificates of the privately or publicly placed single fund, acquired following the enforcement of this Regulation.

Addendum

(April 16, 2003)

This Regulation shall be effective on the date of promulgation.

Addendum

(July 16, 2003)

This Regulation shall be effective on the date of promulgation; provided that the amended provisions concerning the preferred stocks redeemed shall apply to the said stocks issued after the enforcement of this Regulation.