REGULATION

ON

SUPERVISION OF MERCHANT BANKING BUSINESS

Regulation on Supervision of Merchant Banking Business

CONTENTS

I.	General Provisions

§1.	Purpose

§2.	General Guidelines

§3.	Scope of Application

§4.	[Deleted]

§4-2.	The Scope of Equity Capital

§4-3.	Credit Extension

II.	Authorization

Section 1. Procedures

§5.	Authorization

Section 2. Standards for Authorization

§6.	Actions Taken by the Governor Following Modification(s) in Articles of	Incorporation and Mode of Business Operation

§7.	[Deleted]

§8.	[Deleted]

§9.	Relocation of Head Office

§10.	Authorization for Holding Concurrent Position(s) by Executive Officers

III.	Business Operation

§11.	Maturity of Notes

§12.	Deposit and Delivery of Notes

§13.	[Deleted]

§13-2.	Mode of Transaction for Note Management Account

§13-3.	Management of the Trusted Fund in the Note Management Account

§13-4. Issuance of Cover Bills

§14.	[Deleted]

§14-2.	Amount of Bonds Issued

§15.	[Deleted]

§16.	Approval of exception to the Credit Ceiling to a Single Borrower

§16-2.	Management of Large Credit Exposure

§16-3.	Debt-Equity Swaps Exempted from Restriction on Securities Investment

§16-4.	Scope of Beneficiary Certificates Exempted from Restriction on Securities	Investment

§17.	Restriction on Securities Investment

§17-2.	[Deleted]

§18.	Disposal of Real Estate

§18-2.	Selection of Qualified Companies

§18-3.	Use of Discount Limits

§19.	Sales of Unsecured Notes

§20.	Notes Intermediation

§21.	[Deleted]

§21-2.	Disclosure of Credit Rating

§22.	[Deleted]

§23.	Soundness of Management

§24.	Support for SMEs (Small and Medium Size Enterprises)

IV.	Guidance for Sound Management

Section 1. Management Guidance Standards

§25.	Management Guidance Ratios

§26.	Asset Soundness Classification

§26-2.	Asset Subject to Classification

§26-3.	Loan Loss Provisioning Standards

§27.	Risk Management System

§27-2.	Risk Management Organization

§27-3.	Risk Management Rules and Regulations

§28.	Accounting Standards and Settlement of Accounts

Section 2. Management Performance Evaluation and Prompt Corrective Action

§29.	Management Performance Analysis and Evaluation

§30.	Management Improvement Recommendation

§30-2.	Management Improvement Request

§30-3.	Management Improvement Order

§30-4.	Suspension of Prompt Corrective Action

§30-5.	Emergency Measures

§30-6.	Submission of the Management Improvement Plan

§30-7.	Implementation of Management Improvement Plan

§30-8  Support Measures for Implementation of Prompt Corrective Actions

Section 2-2. Valuation and Calculation of Assets and Liabilities for Determining Insolvent Financial Institutions

§31. An MBC Subject to Valuation

§31-2.	Scope of Valuation

§31-3.	Valuation Criteria

§31-4.	Valuation Procedures

Section 3. Management Disclosure

§32.	Submission of Business Report

§33.	Management Disclosure

§34.	[Deleted]

V.	Examination

§35.	[Deleted]

§36.	[Deleted]

§37.	[Deleted]

§38.	[Deleted]

V-2.	Foreign Exchange Regulation

Section 1. General Provisions of Foreign Exchange Regulation

§38-2.	Definitions

Section 2. Registration of Institutions in Foreign Exchange Business

§38-3.	Requirements for Registration

§38-4.	Modification(s) of Registration

Section 3. Prudential Foreign Exchange Regulation

§38-5.	Exchange Rate Risk Management

§38-6.	Liquidity Risk Management

§38-7.	Management of Sources of Medium and Long Term Loans in Foreign	Currency

§38-8.	Offshore Financial Management

§38-9.	Internal Management of Financial Institution

§38-10.	Preclusion

Section 3. Sanctions for Violation of the Prudential Foreign Exchange Regulation

§38-11.	Sanctions for Violation of the Ceiling on Foreign Currency Position

§38-12.	Sanctions for Deficiency in Foreign Currency Liquidity Ratio

§38-13.	Reporting of Sanctions

Section 4. Reporting of Foreign Exchange

§38-14.	Reporting

VI.	Intermediary

§38-15.	Definitions

§38-16.	Basic Principles of Transaction

§39.	Operation Manual of an Intermediary

§39-2.	Institutions Participating in the Intermediation

§39-3.	Asset Management Soundness of an Intermediary

§39-4.	Short-term Financial Market Operation Council

VII.	Supplementary Provisions

§40.	Assistance

§41.	Specifics

§42.	Reporting

§43.	Application of Other Guidelines

§44.	Special Cases of Asset Management

Addenda

Enacted on April 1, 1998

Amended on June 12, 1998

Amended on October 9, 1998

Amended on December 11,1998

Amended on March 12, 1999

Amended on March 26,1999

Amended on August 6, 1999

Amended on September 10, 1999

Amended on December 24, 1999

Amended on June 9, 2000

Amended on July 26, 2000 FSC 2000-74

Amended on October 6, 2000 FSC 2000-94

Amended on December 29, 2000 FSC 2000-119

Amended on February 14, 2001 FSC 2001-9

Amended on March 14, 2001 FSC 2001-13

Amended on September 4, 2001 FSC 2001-63

Amended on October 4, 2001 FSC 2001-74

Amended on November 13, 2001 FSC 2001-89

Amended on December 19, 2001 FSC 2001-106

Amended on May 1, 2002 FSC 2002-21

Amended on January 3, 2003 FSC 2002-89

Amended on July 29, 2003 FSC 2003-39

CHAPTER I.

GENERAL PROVISIONS

§1. Purpose

The purpose of this Regulation is to prescribe matters necessary for the enforcement of the matters under the authority of the Financial Supervisory Commission (hereinafter, "the FSC") in respect of the supervision of merchant banking corporations (hereinafter, "MBC") and intermediaries, as articulated under the Merchant Banking Corporation Act (hereinafter, "the Act"), its enforcement decree (hereinafter, "the Decree"), Act on the Establishment of Financial Supervisory Organizations (hereinafter, "the Supervisory Act"), its enforcement decree, Act on Foreign Exchange Trade, its enforcement decree, and any other relevant statutes thereof. <Amended July 26, 2000, December 29, 2000>

§2. General Guidelines

An MBC shall observe any statutes or regulations of relevance to its business operation, and shall strive to provide comprehensive financial supports by supplying timely and sufficient operating- and investment funds to business enterprises.

§3. Scope of Application

The business operation of the MBCs and intermediaries shall be governed by the provisions of this Regulation, unless prescribed otherwise by other statutes or the FSC. However, only Chapters 6 and 7 and Articles 6, 10, 32, and 33 shall be applied to intermediaries.<Amended August 1, 2002>

§4. Definitions of Terms [Deleted August 6, 1999]

§4-2. The Scope of Equity Capital <Added August 6, 1999>

(1) Equity capital pursuant to Article 2 subparagraph 3 of the Act and Article 2-2 of the Decree shall be calculated as the sum of the core capital and supplementary capital subtracted by the deductions, based on separate financial statements of an MBC.

(2) The scope of the core capital, supplementary capital and deductions under paragraph (1) corresponds to <Appendix Table 1>, and the permitted scope and limit of the supplementary capital shall be determined following the method of calculating equity capital prescribed by the Governor of the Financial Supervisory Service pursuant to Article 25 paragraph (2).

§4-3. Credit Extension <Added August 6, 1999>

The scope of credit extension pursuant to Article 2 subparagraph 4 of the Act and Article 2-3 of the Decree corresponds to <Appendix Table 2>.

CHAPTER II.

AUTHORIZATION

Section 1.

Procedures

§5. Authorization

(1) Any person intending to obtain the authorization for branches pursuant to Article 4 of the Act shall apply to the FSC in the manner prescribed by the Governor of the Financial Supervisory Service (hereinafter, "the Governor"). <Amended August 6, 1999>

1. through 5. [Deleted August 6, 1999]

(2) [Deleted July 26, 2000]

(3) [Deleted August 6, 1999]

Section 2.

Standards for Authorization

§6. Actions Taken by the Governor Following Modification(s) in Articles of	Incorporation and Mode of Business Operation <Amended December 29, 2000>

In the event the Governor adjudges that the report(s) submitted pursuant to Article 17-2 paragraph (1) of the Decree on any modification(s) in the articles of incorporation and mode of business operation, fails to meet any one of the standards under the following subparagraphs (exclusive of subparagraph 4 in case of modification(s) in articles of incorporation), he or she may request correction(s) thereof within a reasonable period of time. <Amended December 29, 2000>

1. The modification(s) shall not be inconsistent with the relevant statutes;

2. The modification(s) shall not contravene the inherent nature of a corporation;

3. The modification(s) shall not infringe on the rights and interests of the users; and

4. In light of the expected scale of the modified mode of business operation and its prospect for profit or loss, the modification(s) shall not warrant any detriment to sound management of the MBC or any disorder in the credit system.

§7. Modification in Mode of Business Operation [Deleted August 6, 1999]

§8. Decrease of Capital [Deleted August 6, 1999]

§9. Relocation of Head Office

The Governor shall review the reports submitted in advance pursuant to Article 8 paragraph (2) subparagraph 3 of the Act, with regard to any speculative adverse effects on the supply and demand of funds in the area where the MBC concerned conducts its business, the establishment of proper competition with other financial institutions, and on the maintenance of credit system. <Amended August 6, 1999>

§10. Authorization for Holding Concurrent Position(s) by Executive Officers

(1) The "corporation(s) permitted by FSC" under Article 13 subparagraph 6 of the Decree corresponds to any one of the following subparagraphs. <Added August 6, 1999>

1. A corporation that maintains a continuous cooperative relationship with the corresponding MBC's controlling shareholder(s) through business transaction(s); and

2. A corporation which conducts business(es) classified as 'financing' or 'insurance' pursuant to the Korean Standard Industry Classification published by the Bureau of Statistics.

(2) The authority and duties concerning the authorization for holding concurrent position(s) pursuant to Article 20 of the Act and Article 13 of the Decree shall be delegated to the Governor. <Amended August 6, 1999>

CHAPTER III.

BUSINESS OPERATION

§11. Maturity of Notes

The "period determined by the FSC" pursuant to Article 7 paragraph (1) subparagraph 1 of the Act corresponds to the period of one year from the date of transaction(s). <Amended August 6, 1999>

§12. Deposit and Delivery of Notes

Notes issued, sold or intermediated by an MBC shall be delivered in real or by deposit passbook(s).

§13. Ancillary Business [Deleted July 26, 2000]

§13-2. Mode of Transaction for Note Management Account <Added December 29, 2000>

(1) The trust period for note management account(s) transacted pursuant to Article 6-4 paragraph (1) subparagraph 1 of the Decree shall be less than one year.

(2) The transaction(s) of note management account(s) shall be executed through trust or withdrawal at anytime by trust passbook(s) of the note management account(s).

§13-3. Management of the Trusted Fund in the Note Management Account <Added December 29, 2000>

(1) The assets belonging to the trusted fund(s) in the note management account(s) of an MBC shall comprise discounted bills of transaction partner(s), before-shipment trade bills, cover bills issued by financial institutions, factoring financing notes or bonds, government bonds and other public bonds, financial bonds, securities subject to open market operation, listed bonds, negotiable certificates of deposit, and reserve assets for payment.

(2) An MBC shall operate in the form of discounted bills, trade bills and factoring financing for over 50/100 of the total assets under the trusted fund(s) in its note management account(s).

(3) The asset(s) under the trusted fund(s) shall be managed separately from the holding assets of the MBC's own account.

(4) In the event of swap-transaction(s) between the assets under the trusted fund(s) and the holding assets of an MBC, the interest rate for the assets admitted into the note management account(s) shall be equal to, or higher than, the interest rate for the assets drawn out from the account(s), and any bad assets shall be transferred to the MBC's own account without delay.

§13-4. Issuance of Cover Bills <Added December 29, 2000>

(1) New bills (cover factoring bills or cover trade bills) may be issued by virtue of integration or division of factoring bills and bonds or trade bills, which an MBC holds after discount or purchase (hereinafter, "the original bills and other instruments").

(2) The cover bills under paragraph (1) shall be issued within the holding balance and final maturity day(s) of the original bills and other instruments, which may not be sold or incorporated into the note management account.

§14. Types of Transaction for Intermediary [Deleted August 6, 1999]

§14-2. Amount of Bonds Issued

In the event an MBC issues bond(s) with maturity of five years or longer by discount method, the balance of the discounted issuance may be subtracted from the amount of bonds issued under Article 10 of the Act.

§15. Debt Ceiling [Deleted August 6, 1999]

§16. Approval of exception to the Credit Ceiling to a Single Borrower <Amended entirely August 6, 1999>

(1) In the event an MBC intends to exceed the credit ceiling prescribed under Article 15 paragraphs (1) through paragraph (4) of the Act, for such reason(s) as stipulated under Article 9-4 paragraph (1) subparagraph 1 of the Decree, the MBC shall apply for approval of exception to the credit ceiling to the Governor within seven days prior to the expected credit extension(s).

(2) The "corporation(s) permitted by the FSC" under Article 9-4 paragraph (1) subparagraph 1 corresponds to any one of the following subparagraphs.

1. Institutions governed by the Frame Act for Management of Government Investment Institution;

2. Institutions governed by the Provincial Public Corporations Act;

3. Korean Asset Management Company, as under the Act Concerning Efficient Resolution of Distressed Assets of Financial Institutions and the Establishment of Korean Asset Management Company;<Amended July 26, 2000>

4. Korean Deposit Insurance Corporation, as under the Depositor Protection Act;

5. Special public corporation(s) established by corresponding enactment(s), applicable under any one of the following subparagraphs :

a. enterprise(s) qualified to benefit from the funds the Government or municipal governments provide to preserve any losses incurred;

b. corporation(s), whose ratio of equity participation by the Government is 50/100 or above; or

c. corporation(s), whose ratio of equity participation by the Government is under 50/100, and which receives an authorization of its budget and financial and tax-wise support from the Government.

6. Financial institution(s) under the Banking Act; and

7. Financial institution(s), which applies the same risk-weight(s) as those of the financial institution(s) under subparagraph 6, according to the standards of calculating the ratio of equity capital against the risk-weighted assets pursuant to Article 25 paragraph (2).

(3) The "circumstance(s) recognized by the FSC" under the provisions of Article 9-4 paragraph (1) subparagraph 2 item d of the Decree corresponds to any circumstances applicable under the following subparagraphs.

1. Merger or transfer of business operation with other financial institutions;

2. Modification(s) in the composition of single borrower(s) or parties of interest;

3. Modification(s) in the account heading(s) of the balance sheet(s) of an MBC; or

4. Modification(s) in the scope of credit extension pursuant to Article 4-3.

(4) In the event an MBC violates the credit ceiling for reason(s) prescribed under Article 9-4 paragraph (1) subparagraph 2 of the Decree, it shall obtain the approval of the Governor by submitting its correction plan(s) within one month from the date of violation, in which event the MBC shall be presumed to receive approval from FSC pursuant to Article 9-4 paragraph (1) of the Decree. <Amended July 26, 2000>

(5) In the event an MBC, in receipt of the approval(s) pursuant to paragraph (4), applicable under each subparagraph of Article 9-4 paragraphs (3) of the Decree, intends to extend the period of violating the credit ceiling pursuant to Article 15 paragraph (6)p of the Act, the MBC shall apply to the Governor by seven days prior to the expiration of the original extension period. The period permitted for extension is less than one year. <Amended July 26, 2000>

(6) Matters concerning the approval(s) under paragraphs (1) and (5) shall be delegated to the Governor. <Amended July 26, 2000>

(7) The Governor shall report to the FSC on the status quo of the approval(s) pursuant to paragraphs (1), (4), and (5) on a quarterly basis. <Amended July 26, 2000>

(8) The Governor shall determine the specifics of the application(s) for approval(s) pursuant to paragraphs (1), (3), and (4). <Amended July 26, 2000>

§16-2. Management of Large Credit Exposure <Added August 6, 1999>

(1) Violation(s) of the ceiling(s) on the total amount of large credit exposure provided under Article 15 paragraph (3) of the Act shall be determined on the basis of the balance as of the end of each month.

(2) The Governor shall determine the specific details concerning the report(s) necessary for the management of the ceiling(s) on the total amount of large credit exposure by MBCs.

§16-3. Debt-Equity Swaps Exempted from Restriction on Securities Investment <Added August 6, 1999, Article 17-2 Changed to Article 16-3>

(1) In the event an MBC comes to hold stocks, by converting loans (corresponding to the credit extensions recognized into the balance sheet of <Appendix Table 2>; hereinafter as such in this Article) extended to the enterprise(s) applicable under any one of the following subparagraphs into investment in equity shares, pursuant to Article 11 paragraph (1) subparagraph 5 of the Decree and Article 11 paragraph (6) of the Act Concerning the Structural Improvement of the Financial Industry, such holding of stocks shall not be viewed as acquisition of stocks pursuant to Article 17 of the Act. <Amended August 6, 1999; Amended July 26, 2000>

1. Enterprises in receipt of decision(s) for the commencement of liquidation procedures pursuant to the Company Reorganization Act;

2. Enterprises in receipt of decision(s) for the commencement of composition pursuant to the Composition Act;

3. Enterprises in the process of workout pursuant to the Agreement among Financial Institutions for the Promotion of Corporate Restructuring;

4. Enterprises subject to the Agreement among Financial Institutions on the Promotion of Rehabilitation of Enterprises Showing Signs of Insolvency and on Effective Management of Bad Credits, and subject to syndicated loans extended by financial institutions;

5. Enterprises subject to industry rationalization; and

6. Enterprises not applicable under subparagraphs (1) through (5), but holding bad credits, and approved by the Governor as debt-equity swap(s) are adjudged necessary for management rehabilitation of the enterprises concerned. <Amended August 6, 1999>

(2) In the event of converting the loans extended to the enterprise(s) applicable under any one of the subparagraphs of paragraph (1) (except subparagraph 6) into investment in equity shares, such an MBC shall report to the Governor on the debt-equity swap(s) within seven days therefrom. <Amended August 8, 1999>

§16-4. Scope of Beneficiary Certificates Exempted from Restriction on	Securities Investment <Added August 6, 1999> <Amended July 26, 2000>

"Beneficiary certificates prescribed by the FSC" under Article 11 paragraph (1) subparagraph 7 of the Decree corresponds to any one of the following subparagraphs.

1. Beneficiary certificates of short-term financing market type investment trust (Money Market Fund) (limited to those sold after March 21. 1999):

2. Beneficiary certificates of public or corporate bond type, whose period of collecting termination fees is less than three months:

3. Beneficiary certificates designated by the Governor from among such beneficiary certificates accounted as other deposits or cash equivalents.

§17. Restriction on Securities Investment

(1) The ceilings on securities investment(s) pursuant to the provisions of Article 11 paragraph (2) of the Decree correspond to the limits under the following subparagraphs, and when an MBC intends to hold securities in excess of the limits prescribed under subparagraphs 1 and 2, the MBC shall obtain the approval(s) of the FSC. <Amended August 6, 1999, July 26, 2000>

1. 20/100 of the total number of shares issued by a single company (exclusive of shares issued by securities investment companies as under the Securities Investment Company Act); <Amended June 12, 1998, August 6, 1999, October 6, 2000, December 29, 2000>

2. 5/100 of the equity capital of an MBC, in the event of shares issued by its controlling shareholder(s) or parties of special interest thereto. The shares approved by the FSC pursuant to subparagraph 1, however, shall not be included in the ceiling; <Amended August 6, 1999, July 26, 2000> and

3. The lesser amount between 5/100 of the equity capital of an MBC and 10/100 of the paid-in capital of companies subject to investment, in the event of unlisted shares sold by the controlling shareholder(s) of the MBC concerned and parties of special interest thereto. The shares approved by the FSC pursuant to subparagraphs (1) and (2), however, shall not be included in the ceiling. <Added July 26, 2000>

(2) Notwithstanding paragraph (1), an MBC shall not be applicable under paragraph (1) subparagraph 2, when it makes any investment(s) to the institution(s) under the following subparagraphs.<Amended August 6, 1999>

1. Financial institutions incorporated by authorizations pursuant to the Banking Act; <Amended August 6, 1999>

2. Securities companies, securities finance companies, investment consulting companies, and transfer agencies, as under the Securities and Exchange Act;

3. Management companies, as under the Securities Investment Trust Business Act;

4. Insurers, under the Insurance Business Act;

5. Intermediaries, as under the Act;

6. Mutual savings and finance companies, as under the Mutual Savings and Finance Company Act;

7. Trust companies, as under the Trust Business Act;

8. Financial companies specializing in loan business, as under the Credit- Specialized Financial Business Act; <Amended August 6, 1999>

9. Futures trading companies, as under the Futures Trading Act;

10. Small and medium industry venture capital companies, as under the Act on Supporting Establishment of Small and Medium Industry; and

11. Agencies designated as credit ratings agency for unsecured corporate bonds by the Governor (hereinafter, "designated credit ratings agency"); <Amended August 6, 1999>

§17-2. Debt-Equity Swap [Deleted August 6, 1999, Changed to Article 16-3]

§18. Disposal of Real Estate

(1) Indisputable circumstance(s), as recognized under Article 12-2 paragraph (1)p of the Decree, corresponds to the period of one year from submission(s) of report(s) to the Governor on extension of the period for disposing non-operational real estate(s), on account of failure(s) or suspension(s) of auction sale. <Amended August 6, 1999>

(2) [Deleted August 6, 1999]

§18-2. Selection of Qualified Companies <Added August 6, 1999>

(1) An MBC shall select qualified companies, with which it intends to enter into transaction(s) of discounts, sales, intermediation, acceptances and guarantees of notes. This, however, shall not apply to discounting of notes guaranteed by other financial institutions.

(2) An MBC selecting qualified companies shall conduct thorough credit investigations and analyses on financial status and management performance, based on which the MBC shall establish reasonable discount limits in compliance with the restrictions pursuant to Article 15 paragraph (4) of the Act. When selecting qualified companies on the basis of credit evaluation report(s) produced by the designated credit rating agency(s), however, an MBC may waive the credit investigation and analysis. <Added on December 29, 2000>

(3) For the purposes of confirming the credit standing(s) and soundness of holding assets of the qualified companies, an MBC shall conduct its own credit investigation more than once a year, or shall avail itself of the evaluation results produced by the designated credit rating agencies for their credit-worthiness. <Added December 29, 2000>

§18-3. Use of Discount Limits <Added December 29, 2000>

(1) In the event an MBC discounts note(s), it shall be bound by the limit(s) pertaining to the discount client(s), which are qualified companies.

(2) Notwithstanding paragraph (1), when unqualified companies request discount(s) of notes acquired directly from the qualified companies through commercial transaction(s), an MBC can use the discount limit(s) of the qualified companies concerned.

§19. Sales of Unsecured Notes

(1) In the event an MBC sells unsecured note(s), it shall not conduct any act(s) in the nature of guaranteeing the payment(s) of the note(s) such as, but not limited to, giving a memorandum or letter to the effect of promising direct or indirect guarantee by the MBC itself or by other parties for the payment of the note(s) in question. In the event of selling note(s) issued by SMEs (small and medium sized enterprises) guaranteed by banking institution(s), the Credit Guarantee Fund, Korea Technology Credit Guarantee Fund, or other MBCs, the preceding clause shall not be applicable.

(2) [Deleted]

(3) The lowest rating of the unsecured note(s) sold by an MBC, based on the credit evaluation of more than one designated credit rating agencies, shall be B rate or higher. In the event of paragraph (1) or notes issued by companies specifically designated by the Governor, however, the credit ratings requirement(s) may be waived. <Proviso Amended September 10, 1999>

(4) An MBC may sell unsecured notes within 200 percent of the limit prescribed under Article 15 paragraph (4) of the Act to each of the qualified companies separately. <Added December 29, 2000>

(5) In the event an MBC sells note(s) meeting all the requirements provided under the following subparagraphs, the limit prescribed under paragraph (4) shall not apply. <Added December 29, 2000>

1. Issuer: listed corporation(s);

2. Credit evaluation rating: A2 rate or higher for every credit evaluation rating; and

3. Unit of transaction: over KRW 10 million at par value.

§20. Notes Intermediation

(1) An MBC is qualified to intermediate sales of only the unsecured notes, the lowest credit rating of which, pursuant to the credit evaluation of the designated credit rating agency, is B rate or higher. In the event of companies specifically designated by the Governor, however, the credit rating requirement(s) may be waived. <Proviso added September 10, 1999, Amended December 29, 2000>

(2) The total balance of the unsecured notes intermediated by an MBC pursuant to paragraph (1) shall meet the requirement under the following subparagraphs.

1. a manufacturing enterprise : within 40/100 of its equity capital (within 30/100 in case of an enterprise whose credit rating is B rate); and

2. a non-manufacturing enterprise : within 30/100 of its equity capital (within 20/100 in case of an enterprise whose credit rating is B rate).

§21. Preservation of Claims [Deleted December 11, 1998]

§21-2. Disclosure of Credit Rating <Added December 29, 2000>

(1) In the event of selling, or intermediating sales of, unsecured notes, an MBC shall state the lowest credit rating from the credit evaluation performed by the designated rating agencies, either on its passbooks or in any empty space at the notes in question, and shall make available for public knowledge at its places of business the credit evaluation rating disclosed by the designated credit rating agencies.

(2) An MBC shall display at its places of business the statement(s) of bankruptcy rate per credit rating disclosed by the designated rating agencies pursuant to the provisions of Article 17 paragraph (2) subparagraph 11 on a quarterly basis.

§22. Ex Ante Review and Ex Post Facto Control of Credit Extension [Deleted December 29, 2000]

§23. Soundness of Management

(1) An MBC shall not extend loans in direct or indirect consideration of purchasing its own shares by the borrower(s).

(2) An MBC shall not provide fund(s), either directly or indirectly in the form of, but not limited to, loan(s) or payment guarantee(s), to the holders of indebted capital such as, but not limited to, subordinated bonds or subordinated borrowings. <Added on August 6, 1999>

(3) An MBC shall not provide its own property as collateral for other person(s). <Amended August 6, 1999>

(4) An MBC shall not commit any sales or exchange of real estate with its controlling shareholder(s) and parties of special interest thereto, when the sales price differs more than 10/100 from the price estimated within last three months by officially certified appraiser(s).

1. [Deleted July 26, 2000]

2. [Deleted July 26, 2000]

(5) An MBC shall not engage in any unconscionable activities applicable under any one of the following subparagraphs in relation to its credit extension(s).

1. Freezing the deposits by restricting the use of borrowed money or increasing financial cost of borrower(s) beyond the standards prescribed by the Governor;

2. Unjustly transferring the credit risk undertaken by the MBC to its customer(s), either directly or indirectly; and

3. Any other act(s) to the effect of obtaining unjust profits or infringing on the interests of the customer(s), by taking advantage of the MBC's superior position.

§24. Support for SMEs (Small and Medium Size Enterprises)

An MBC shall supply to SMEs (small and medium size enterprises) over 25/100 of the gross amount of its holding notes against enterprises (exclusive of public institutions and non-profit institutions), factoring financing, payment guarantees for notes, and mid-long term loans. <Amended December 11, 1998>

CHAPTER IV.

GUIDANCE FOR SOUND MANAGEMENT

Section 1.

Management Guidance Standards

§25. Management Guidance Ratios

(1) Pursuant to Article 21-2 of the Act, Article 14 paragraphs (1) and (3) of the Decree, an MBC shall maintain the management guidance ratios applicable under the following subparagraphs.

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

2. Ratio of assets to liabilities in won currency, whose maturities expire within less than three months (hereinafter, "liquidity ratio in won currency"): 100/100 or more; <Amended August 6, 1999>

3. [Deleted June 9, 2000]

4. [Deleted June 9, 2000]

5. Ratio of net non-performing loans weighted by risk of losses: 0/100 or less <Amended March 14, 2001>

(2) Detailed criteria on the calculation of ratios under paragraph (1) shall be determined by the Governor. The ratio under paragraph (1) subparagraph 1 shall be calculated based on the consolidated balance sheet of the MBC. <Amended June 9, 2000>

(3) The Governor may require the submission of a plan or a contract for the improvement of a MBC 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 29, or the Governor may conclude management improvement agreements with the financial institution concerned. However, this is not applicable to any MBC in receipt of management improvement recommendation, management improvement request, or management improvement order pursuant to Articles 30 to 30-3  of this Regulation.

§26. Asset  Soundness Classification

(1) An MBC shall regularly classify the soundness of its 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 26-3.

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

(4) To maintain the feasibility and objectivity of the asset classification and loan loss provisioning standards pursuant to paragraph (1),  a MBC shall maintain independent credit review ability.

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

(6) The Governor may require such MBC 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.

§26-2. Asset Subject to Classification <Added June 9, 2000>

"Holding assets" under Article 26 paragraph (1) corresponds to the assets determined under the following subparagraphs, which include such relevant assets as note management account.

1. Loans under the Accounting Principles of Merchant Banking Business prescribed by the Securities and Futures Commission (hereinafter, "loans");

2. Payments guarantee with determinate primary obligation (hereinafter, "determinate payments guarantee");

3. Securities;

4. Lease assets;

5. Suspense payments or account receivables; and

6. Any other assets recognized by an MBC as necessary for classification.

§26-3. Loan Loss Provisioning Standards <Added June 9, 2000>

(1) Standards for loan loss provisioning of an MBC are as follows:

1. As for loans, suspense payments of credit character, and accounts receivables as of the date of account settlement (including quarterly provisional account settlement; hereinafter as such), an MBC shall accumulate reserves for loss provisioning corresponding to the amounts under the following subparagraphs in accordance with the results of assets classification:.

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

b. 2/100 or more of assets classified as precautionary;

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

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

e. 100/100 of assets classified as estimated loss

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

3. An MBC shall accumulate the amounts determined in the following items as the payment guarantee reserves for the determinate payment guarantees as of the end of each quarter, pursuant to the results of asset soundness classification.

a. 20/100 or more of the payment guarantees classified as normal;

b. 50/100 or more of the payment guarantees classified as doubtful; and

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

4. With the respect to operation lease assets (including advanced lease), the required loan loss provisioning which complies with the standard under subparagraph 1 as a result of classification of the relevant asset soundness as of the end of each quarter shall be accumulated as provisioning for losses on sale of operation lease assets.

(2) Notwithstanding paragraph(1), the Governor may require the relevant MBC 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 MBC may accumulate the loan loss provisioning pursuant to paragraph (1).

§27. Risk Management System <Amended entirely December 24, 1999>

(1) For prevention and efficient management of risks along with various business operation, a MBC shall build and operate a comprehensive risk management system, which can recognize, assess, monitor, and control the corresponding risk.

(2) In line with the risk management system under paragraph (1), an MBC shall assess and manage significant risks measurable such as  credit risk, market risk, and liquidity risk, which may occur in its transactions by each type.

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

§27-2. Risk Management Organization <Added December 24, 1999>

(1) The board of directors of an MBC shall deliberate and decide on the matters necessary for risk management, such as approval of policies and strategies on risk management, and establishment and revision or regulations on risk management.

(2) For efficient performance of the approvals and decisions on risk management, an MBC shall establish and operate the risk management committee (hereinafter, "the committee"), which shall conduct the business under any of the following subparagraphs.

1. Establishment of policies and strategies on risk management.

2. Decision on bearable risk levels

3. Determination of risk ceilings and approval of exceeding the ceilings.

4. Report to the board of directors on the matters approved or decided by the committee.

(3) An MBC 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 As for an MBC whose scale of business is smaller than the standards prescribed by the Governor, however, existing unit(s) or person(s) in charge may undertake this duties.

§27-3. Risk Management Rules and Regulations <Added December 24, 1999>

An MBC shall establish internal regulations or guidelines, as befitting its specific needs and circumstances, in respect of risk management basic policies, organization and procedures, limitation adjustments, internal control and risk measurement, and administration structure.

§28. Accounting Standards and Settlement of Accounts

(1) An MBC shall comply with the Accounting Principles for Merchant Banking Business prescribed by the Securities and Futures Commission in accounting and drafting financial statements. <Amended August 6, 1999>

1. through 5. [Deleted. August 6, 1999]

(2) Specific matters and accounting standards for foreign exchange accounts consigned by the Enforcement Decree of the Foreign Exchange Transactions Act, which are not prescribed under the Accounting Principles for Merchant Banking Business, shall be determined by the Governor.

(3) An MBC shall enlarge its internal retainment by duly accumulating all provisioning and reserves in compliance with the terms mandated by the Governor.

Section 2.

Management Performance Evaluation and Prompt Corrective Action

<Amended March 26, 1999>

§29. Management Performance Analysis and Evaluation

(1) The Governor shall analyze the management performance of an MBC and thereby supervise the soundness of management practice.

(2) The Governor may evaluate management performance through the examination of an MBC, the results of which may be reflected in the supervision and examination business.

(3) In the event the Governor determines that there exist(s) any cause(s) for the deterioration of the soundness of management practice or for management underperformance following the analysis and evaluation of management performance pursuant to paragraphs (1) and (2), he or she shall subject the MBC concerned to a more strengthened supervision and examination for immediate alleviation of the circumstances. <Added December 24, 1999>

(4) The management performance evaluation pursuant to paragraph (2) shall be conducted upon the head office of an MBC and its corporation(s) incorporated overseas, with respect to such criteria as its "capital adequacy," "asset soundness," "business management capacity," "profitability," and "liquidity,", the evaluation results of which being categorized into five ratings as first grade (excellent), second grade (good), third grade (mediocre), fourth grade (weak), and fifth grade (risky), for each of the criteria separately as well as for the overall performance of the MBC. <Amended December 24, 1999>

(5) The specifics concerning the management performance analysis and evaluation pursuant to paragraphs (1) through (4) 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 25 paragraph (1) subparagraph 1. <Amended December 24, 1999, December 29, 2000>

§30. Management Improvement Recommendation

(1) In the event an MBC is applicable under any one of the following subparagraphs, the Governor shall subject such an MBC to the implementation of the applicable recommendation(s) he or she issues. <Amended December 29, 2000>

1. When the ratio of equity capital against the risk-weighted assets pursuant to Article 25 falls under 8/100;

2. When in receipt of fourth grade (weak) or below for the criteria of "capital adequacy" or "asset soundness", while in receipt of an overall rating of third grade (mediocre) or above following the management performance evaluation pursuant to Article 29; and

3. When an MBC is adjudged to become applicable under subparagraph 1 or 2 as a consequence of the culmination(s) of large scale financial crime(s) or accident(s) or non-performing loans. <Amended December 29, 2000>

(2) Recommendation(s) under paragraph (1) corresponds to either a part or all of the measures under the following subparagraphs.

1. Improvement in personnel management and organizational operation;

2. Cost reduction;

3. Enhancement in the efficiency of business offices administration;

4. Restriction on investment in fixed assets, expansion into new business, or new contribution;

5. Disposal of non-performing assets;

6. Increase or decrease in capital;

7. Restriction on distribution of dividends; and

8. Allocation of special loan loss provisioning.

(3) When issuing recommendation(s) pursuant to paragraph (1), the Governor may take such measures as "precaution" or "warning" against an MBC or executive officer(s) related thereof. <Amended entirely March 26, 1999>

§30-2. Management Improvement Requirement <Added March 26, 1999>

(1) In the event an MBC is applicable under any one of the following subparagraphs, the FSC shall subject such an MBC to the implementation of the applicable request(s) it issues. <Amended December 29, 2000>

1. When the ratio of equity capital against the risk-weighted assets pursuant to Article 25 falls under 6/100;

2. When in receipt of an overall rating of fourth grade (weak) or below following the management performance evaluation pursuant to Article 29;

3. When an MBC is adjudged to become applicable under paragraph (1) or (2) as a consequence of the culmination(s) of large scale financial accident(s) or crime(s) or non-performing loans; <Amended December 29, 2000>

4. When an MBC in receipt of management improvement recommendation(s) pursuant to Article 30 paragraph (1) does not implement its management improvement plan(s) with valuation and calculation of assets and liabilities.

(2) Requirement(s) under paragraph (1) corresponds to either a part or all of the measures under the following subparagraphs.

1. Closure□consolidation or restriction on opening of new branch offices;

2. Downsizing of organization;

3. Restriction on holding risky assets and disposal of such assets;

4. Restriction on the level of interest applicable to deposits;

5. Liquidation of subsidiaries;

6. Requiring replacement of executive officer(s);

7. Partial suspension of business operation;

8. Drafting of plans for merger, admission as a subsidiary into a Financial Holding Company (hereinafter, "FHC") (inclusive of such cases where an MBC incorporates an FHC either individually or jointly with other financial institutions and thereby joining the FHC as a subsidiary), third-party takeover, or transfer of business entire or partial; <Amended December 29, 2000> and

9. Any matters prescribed under Article 30 paragraph (2).

§30-3. Management Improvement Order <Added March 26, 1999>

(1) In the event an MBC is applicable under any one of the following subparagraphs, the FSC shall subject such an FSC to the implementation of the applicable order(s) he or she issues. <Amended December 29, 2000>

1. When an MBC becomes an insolvent financial institution pursuant to Article 2 subparagraph 3 of the Act on the Structural Improvement of Financial Industry;

2. When the ratio of equity capital against the risk-weighted assets pursuant to Article 25 falls under 2/100;

3. When an MBC in receipt of management improvement requirement(s) pursuant to Article 30-2 paragraph (1) does not comply with the consequential terms of its management improvement plan(s), as a consequence of which the MBC receives implementation demand(s) pursuant to Article 30-6 paragraph (6), the subsequent noncompliance with which, or the prospects of noncompliance with which, renders the MBC adjudged to face serious difficulties in business operation.

(2) Order(s) under paragraph (1) corresponds to either a part or all of the measures under the following subparagraphs. However, such measures as "suspension of entire business operation," "transfer of entire business operation," "transfer of entire contracts," or "destruction of entire shares" shall be applicable only when an MBC is declared as an insolvent financial institution pursuant to paragraph (1) subparagraph 1, or when it is adjudged to have failed to meet the standards prescribed under paragraph (1) subparagraph 2, whereby the underperformance of such an MBC is considered to be detrimental to the maintenance of a sound credit order or to the protection of transaction partners. <Amended December 29, 2000>

1. Full or partial destruction of shares;

2. Suspension of executive officer(s) from office and appointment of conservator(s);

3. Merger, or admission as a subsidiary into an FHC (inclusive of such cases where an MBC incorporates an FHC either individually or jointly with other financial institutions and thereby joining the FHC as a subsidiary); <Amended December 29, 2000>

4. Full or partial transfer of business operation;

5. Third-party takeover of the MBC;

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

7. Full or partial transfer of contract(s); and

8. Matters prescribed under Article 30-2 paragraph (2).

(3) In the event of an MBC in receipt of management improvement recommendation(s) pursuant to Article 30 paragraph (1) or management improvement requirement(s) pursuant to Article 30-2 paragraph (1), whose normal business operation is adjudged difficult without financial support from outside, as a consequence of which the Government or the Deposit Protection Corporation has decided to invest therein, the FSC may order the MBC in question to either increase or decrease its capital, in spite of paragraph (1).

§30-4. Postponement of Prompt Corrective Action <Added March 26, 19>

The Governor or the FSC may postpone a prompt corrective action for a specified period of time when recognizing that an MBC applicable under any one of the subparagraphs of Article 30 paragraph (1), Article 30-2 paragraph (1), or Article 30-3 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. <Amended December 29, 2000>

(2) [Deleted December 29, 2000]

§30-5. Emergency Measures <Added March 26, 1999>

(1) In the event an MBC is applicable under any one of the following subparagraphs, whereby detriment of the interest of transaction partner(s) is highly warranted, the FSC may take emergency measure(s) to eliminate the risk(s) involved therein. Where convening of the FSC is not possible under any emergency situation, Chairman of the FSC may take measure(s) immediate and necessary, following which he or she shall call to convene the FSC and report on the measure(s) taken without delay.

1. When an MBC faces such circumstance(s) as including, but not limited to, deficiency of reserve assets for deposit payment or debt redemption incapacity, as a result of a radical shortage of liquidity;

2. When normal business operation of an MBC is deemed impossible or impractical, due to such unforeseen accident(s) as, but not limited to, temporary closure of business, suspension of business operation, a run on fund withdrawals or labor dispute(s); and

3. When bankruptcy of an MBC is imminent or when it is on a deposit payment default.

(2) Emergency measure(s) in paragraph (1) corresponds to either a part or all of the measures under the following subparagraphs.

1. Restriction on fund receipt(s) or credit extension(s);

2. Complete or partial suspension of fund payments;

3. Prohibition of debt servicing act(s); and

4. Disposal of assets.

§30-6. Submission of the Management Improvement Plan <Added March 26, 1999>

(1) An MBC in receipt of management improvement recommendation(s), management improvement requirement(s), or management improvement order(s) pursuant to Articles 30, 30-2, or 30-3 shall submit plan(s) which shall reflect the measure(s) taken (hereinafter, "management improvement plan") to the Governor within a time frame the Governor or the FSC prescribes not exceeding one month from the date of such measure(s). <Amended December 29, 2000>

(2) The Governor shall decide on the approval of the plan(s) submitted pursuant to paragraph (1) and Article 30 paragraph (1), and the FSC shall decide on the approval(s) of the plan(s) submitted pursuant to paragraph (1) and Article 30-2 paragraph (1), and paragraph (1) and Article 30-3 paragraph (1), within one month from such submission(s). <Amended December 29, 2000>

(3) The Governor shall receive a review of the Management Assessment Committee comprised of independent professionals in advance prior to making approval decision pursuant to the provisions of paragraph (2). This, however, shall not apply in the event of emergency or deliberation deemed unnecessary by the Governor. <Amended August 1, 2002>

(4) In the event the management improvement plan(s) submitted pursuant to paragraph (1) by an MBC in receipt of management improvement recommendation(s) pursuant to Article 30 paragraph (1) fails to prove feasible, the Governor shall disapprove of the plan(s). The FSC, in this case, shall require implementation of measure(s) partially or entirely applicable under Article 30-2 and submission(s) of plan(s) reflective of the measure(s) taken within a specified period of time. <Amended December 29, 2000>

(5) In the event the management improvement plan(s) submitted pursuant to paragraphs (1) and (4) by an MBC in receipt of management improvement requirement(s) pursuant to Article 30-2 paragraph (1) fails to prove feasible, the FSC shall disapprove. The FSC, in this case, shall require implementation of measure(s) partially or entirely applicable under each subparagraph of Article 30-2 paragraph (2) and submission(s) of plan(s) reflective of the measure(s) taken within a specified period of time. When the plan(s) thus submitted fails to prove feasible, the FSC may require or order implementation of measure(s) partially applicable under Article 30-3 paragraph (2). <Amended December 29, 2000>

(6) An MBC in receipt of the approval(s) of its management improvement plan(s) pursuant to paragraph (2) shall submit to the Governor a quarterly report on the progress in implementation of the approved plan(s) by the tenth day of each new quarter, whereby the Governor shall examine the implementation results, and when it is adjudged insufficient or its further implementation is likely impractical due to any change of circumstances such as modification(s) in relevant system(s), the Governor may take measure(s) necessary such as, but not limited to, requiring of modification(s) of the plan(s) or demanding full implementation of the approved plan(s) within a time frame it prescribes. <Amended December 29, 2000>

(7) In the event the Governor requires an MBC in receipt of management improvement requirement(s) of modification(s) of major terms of its management improvement plan(s) or of full implementation of the plan(s) within a specified period of time pursuant to paragraph (6), the Governor shall report to the FSC in advance. <Added December 29, 2000>

(8) In the event an MBC re-submits its management improvement plan(s) with modification(s) of major terms therein pursuant to paragraph (6), paragraphs (2) through (5) shall be applied. <Added December 29, 2000>

(9) In the event an MBC in receipt of management improvement order(s) pursuant to Article 30-3 submits plan(s) reflective of the measure(s) taken, paragraphs (5) through (8) may be applied. <Added December 29, 2000, Amended February 14, 2001>

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

§30-7. Implementation of Management Improvement Plan <Added March 26, 1999>

(1) The implementation period for the management improvement plan of an MBC in receipt of management improvement recommendation(s) pursuant to Article 30 shall be within one year from the date of the approval of the plan.

(2) The implementation period for the management improvement plan of an MBC in receipt of management improvement requirement(s) pursuant to Article 30-2 shall be within one and a half year from the date of the approval. In the event of an MBC in receipt of management improvement requirement(s) while in receipt of management improvement recommendation(s) pursuant to Article 30, the one-and-a-half year period shall be counted from the date of the approval of the plan(s) for the management improvement recommendation(s).

(3) When in receipt of demand of full implementation of management improvement plan(s) by the Governor pursuant to Article 30-6 paragraph (6), the period provided under paragraph (2) may be extended.

(4) In the event of an early successful implementation of the management improvement plan by an MBC in receipt of management improvement recommendation(s), requirement(s), or order(s) pursuant to Articles 30 through 30-3, through such means as increase(s) in capital or resolution(s) of non-performing loans, as a consequence of which the MBC has achieved a significant management rehabilitation, the Governor or the FSC may alleviate the degree(s) of the measure(s) required or waive any further implementation thereof.

(5) In the event the implementation period expires and the management of an MBC in receipt of management improvement recommendation(s), requirement(s), or order(s) pursuant to Articles 30 through 30-3 is adjudged sufficiently rehabilitated, the Governor or the FSC shall notify the MBC of the termination of the measure(s) taken; in the event the management performance of an MBC is applicable under Article 30 paragraph (1), Article 30-2 paragraph (1) or Article 30-3 paragraph (1), the Governor or the FSC shall take a separate and corresponding management improvement recommendation(s), management improvement requirement(s) or management improvement order(s).

§30-8 Support Measures for Implementation of Prompt Corrective Actions

In the event an MBC fails to comply with the requirements prescribed under Articles 10, 15, 17, and 19 of the Act as a result of mergers and acquisitions, assumption, business transfer, taking over of business or transfer of contracts among financial institutions by prompt corrective action pursuant to the provisions of Article 11 paragraph (5) of the Act on the Structural Improvement of the Financial Industry, it shall submit a plan for resolving the situation within one month and report on its performance to the Governor on a semi annual basis.

Section 2-2.

Valuation and Calculation of Assets and Liabilities for

Determining Insolvent Financial Institutions

<Added March 26, 1999>

§31. An MBC Subject to Valuation

(1) An MBC subject to the valuation and calculation of assets and liabilities for the determination of an insolvent financial institution shall be applicable under any one of the following subparagraphs.

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

2. An MBC whose ratio of equity capital to the risk-weighted assets pursuant to Article 25 falls below 4/100; <Amended December 24, 1999> and

3. An MBC in receipt of fifth grade (risky) for the criteria prescribed by the Governor following the management performance evaluation pursuant to Article 29. <Amended entirely March 26, 1999>

§31-2. Scope of Valuation <Added March 26, 1999>

(1) In principle, each account title of assets and liabilities on the balance sheet of an MBC at the end of the latest month shall be valued and calculated pursuant to Article 31, 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 securities investment trust(s) without principal preservation agreements in the securities investment trust account(s).

(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 guarantee; and

2. Credit extension agreement.

§31-3. Valuation Criteria <Added March 26, 1999>

(1) The assets and liabilities subject to valuation and calculation pursuant to Article 31-2 shall be valued based 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.

§31-4. Valuation procedures <Added March 26, 1999>

(1) The Governor may demand that an MBC subject to the valuation and calculation of their assets and liabilities, and may conduct on-site examinations 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 3.

Management Disclosure

§32. Submission of Business Report

(1) An MBC shall submit a monthly business report and an annual business operation report to the Governor.

(2) The specific standards and procedures applicable under paragraph (1) shall be determined by the Governor.

§33. Management Disclosure

(1) The Governor shall announce on a quarterly basis matter(s) of significance to the soundness of capital structure of MBC, as prescribed under each subparagraph of Article 17 paragraph (1) of the Decree. <Added August 6, 1999>

(2) An MBC must disclose the matters applicable under subparagraphs (1) through (6) of Article 17 paragraph (2) of the Decree within three months from the settlement date. However, disclosure on the result of the first half year settlement shall be made within two months from the settlement date of the first half year. <Amended August 6, 1999>

1. through 5. [Deleted August 6, 1999]

(3) The specific disclosure items and method of disclosure under paragraph (2) shall be determined in conformity with the Uniform Management Disclosure Standards for Merchant Banking Corporations prescribed by the Chairman of the Association of Merchant Banking Corporations (hereinafter, "the Association"). <Amended August 6, 1999>

(4) An MBC 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. <Amended August 6, 1999>

1. When an MBC is applicable under Article 17 paragraph (2) subparagraph 7 of the Decree; <Amended August 6, 1999>

2. When non-performing loan(s) or financial accident(s) arise beyond the scale prescribed by the Governor; <Amended August 6, 1999> and

3. When any other matter(s), recognized as of significance by the Governor, applicable under Article 17 paragraph (2) subparagraph 2 should arise. <Amended August 6, 1999>

(5) The subjects, contents, methods, time and etc, of the disclosure(s) under paragraph (4) shall be determined by the Governor. <Amended August 6, 1999>

(6) In the event an MBC makes disclosure(s) of matters prescribed under paragraphs (1) through (4) without due diligence through false statement(s) or omission(s) of material fact(s) or information, the Governor may require the MBC of redisclosure(s) or correction(s).

§34. Matters to be Reported [Deleted August 6, 1999]

CHAPTER V.

EXAMINATION [DELETED AUGUST 6, 1999]

§35. Commencement of Examination [Deleted March 12, 1999]

§36. Examination Results [Deleted March 12, 19]

§37. Disposition of the Examination Results [Deleted March 12, 1999]

§38. Prevention of Financial Accident or Crime [Deleted August 6, 1999]

CHAPTER V-2.

FOREIGN EXCHANGE REGULATION <ADDED DECEMBER 29, 2000>

Section 1.

General Provisions of Foreign Exchange Regulation

§38-2. Definitions <Added December 29, 2000>

A "merchant banking corporation" (MBC) under this Chapter corresponds to the merchant banking corporation, which has registered to conduct the foreign exchange business pursuant to the provisions of Article 8 paragraph (1) of the Foreign Exchange Transactions Act.

Section 2.

Registration of Institutions in Foreign Exchange Business

§38-3. Requirements for Registration <Added December 29, 2000>

(1) "Standards for financial soundness applicable to financial institutions concerned 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 standards under Article 3 of the Act;

2. Equity capital standards under Article 25;

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

§38-4. Alteration of Registration <Added December 29, 2000>

(1) When intending to establish(provided that it is authorized pursuant to Article 4 of the Act) or close its domestic offices handling foreign exchange business or to change its addresses pursuant to Article 16 paragraph (1) of the decree of the Foreign Exchange Transactions Act, the FSC shall report to the Governor at least seven days before the date thereof.

(2) Detailed matters concerning declaration under paragraph (1) shall be determined by the Governor.

Section 3.

Management of Foreign Exchange Soundness

§38-5. Exchange Rate Risk Management

(1) Pursuant to Article 21 subparagraph 2 of the decree of the Foreign Exchange Transactions Act, an MBC shall verify compliance with the ceiling on foreign exchange purchase amounts in excess and foreign exchange sales amounts in excess on the basis of the balance of every business day. Otherwise, foreign exchange position on Saturdays or holidays of the New York Foreign Exchange Market should be on the basis of average balances aggregated with the foreign exchange position of the following business day.

(2) When in violation of the ceiling on foreign exchange positions, an MBC shall report such violation to the Governor within three business days from the date of its violation.

§38-6. Liquidity Risk Management

(1) An MBC shall classify and manage its assets and liabilities in foreign currency  by each remaining maturity date under Article 21 subparagraph 4 of the enforcement Decree of the Foreign Exchange Transactions Act, and maintain the ratio under the following subparagraphs.

1. The Ratio of assets with remaining maturity of less than three months to liabilities with remaining maturity of less than three months : 80/100 or above; and

2. The ratio of mismatch in maturities of assets and liabilities in foreign currency.

a. Ratio of assets exceeding liabilities in the event of remaining maturity of less than seven days; 0/100 or above

b. Ratio of debts exceeding assets being in the event of remaining maturity of less than one month : 10/100 or below

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

§38-7. Management of Financial Sources for Medium and Long Term Loans in Foreign Currency

(1) Pursuant to Article 21 subparagraph 4 of the enforcement decree of the Foreign Exchange Transactions Act, an MBC shall secure funds in foreign currency with redemption period of over one year for over 50/100 of its loans in foreign currency with redemption period of over one year. This, however, shall not apply when the balance of loans in foreign currency is less than USD 50 million.

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

§38-8. Offshore Finance Management

(1) In the event an MBC secures funds from non-residents under Article 3 paragraph (1) subparagraph 13 of the Foreign Exchange Transactions Act (hereinafter, "non-residents') and operate these funds towards non-residents (hereinafter, "offshore financing"), they shall establish offshore financing accounts, which shall be calculated by separating from other transactions.

(2) The methods of financing and operating offshore financing accounts under paragraph (1) are as the following subparagraphs.

1. The method of financing

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

b. Deposit(s) from non-residents or other offshore financing accounts

c. Issuance(s) of foreign currency securities abroad

d. Sales of credits in foreign currency against non-residents

2. The method of operating

a. Loans or safekeepings to non-residents or other offshore financing accounts

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

§38-9. Internal Management of Financial Institution

(1) An MBC shall establish and operate its internal management standards for each kind of risks occurred in foreign currency transactions, such as country risks, large credit risks, financial derivatives transaction risks, market risks and others under Article 21 subparagraph 6 of the Enforcement Decree of the Foreign Exchange Transactions Act

(2) In the event an MBC intends to establish and alter the management standards or make foreign currency transactions beyond the management standards under paragraph (1), it shall pass through the resolution of an internal risk management organization.

(3) The Governor shall establish examplary standards, and when the risk management standards of an MBC are deemed inappropriate, the Governor may request the correction thereof .

§38-10. Preclusion <Added December 29, 2000>

The provisions under this Chapter are not applicable to the securities investment trust accounts of an MBC.

Section 4.

Sanctions against Violations of the Supervision on

Foreign Exchange Soundness

§38-11. Sanctions against Violations of the Ceiling on Foreign Currency Position

(1) The Governor may impose a sanction pursuant to the following subparagraphs in the event an MBC violates the ceiling on the foreign currency position under Article 38-5.

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

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

(2) An MBC shall be subject to double-reductions of the ceilings on foreign currency position under paragraph (1) subparagraph 2 when it is applicable under any of the following subparagraphs.

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

2. When committing the violation on purpose; and

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

(3) In the event that a decrease in the equity capital and other reasons for exceeding the ceiling is deemed unavoidable in applying paragraphs (1) and (2), the Governor may exempt, postpone, or cancel the sanctions thereof.

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

§38-12. Sanctions for Failure to Achieve Foreign Currency Liquidity Ratio <Added December 29, 2000>

(1) In the event an institution conducting foreign exchange business fails to achieve and maintain the ratios prescribed under Articles 38-6 and 38-7 twice or less during the past one year period (and four times or less during the past one year period with respect to the ratios provided under Article 38-6 paragraph (1) subparagraph 2), it shall submit an explanatory statement and recovery plan to the Governor in accordance with the stipulations of the Governor.

(2) In the event an institution conducting foreign exchange business fails to achieve and maintain the ratios prescribed under Articles 38-6 and 38-7 at least three times during the past one year period, ascended ratios under the following subparagraphs shall be applied notwithstanding Articles 38-6 and 38-7.

1. Ratio provided under Article 38-6 paragraph (1) subparagraph 1

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

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

2. Ratio provided under Article 38-6 paragraph (1) subparagraph 2 item b

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

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

3. Failure to achieve and maintain the ratio provided under Article 38-7 paragraph (1) three times during the past one year period : Secure funds in foreign currency with redemption period of over one year for over 55/100 of its loans in foreign currency with redemption period of over one year.

(3) When an institution conducting foreign exchange business becomes applicable under the following subparagraphs 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 becomes applicable under subparagraph 4, it shall suspend new loans in foreign currency with maturity of over one year, until it achieves the ratios provided under the following subparagraphs.

1. Failure to achieve and maintain the ratios provided under each item of paragraph (2) subparagraph 1 or Article 38-6 paragraph (1) subparagraph 1 at least five times during the past one year period : 90/100 or over.

2. Failure to achieve and maintain the ratios provided under Article 38-6 paragraph (1) subparagraph 2 item a at least five times during the past one year period : 0/100 or above.

3. Failure to achieve and maintain the ratios provided under each item of paragraph (2) subparagraph 2 or Article 38-6 paragraph (1) subparagraph 2 item b at least five times during the past one year period : 0/100 or below.

4. Failure to achieve and maintain the ratios provided under paragraph (2) subparagraph 3 or Article 38-7 paragraph (1) at least four times during the past one year period : Secure funds in foreign currency with redemption period of over one year for over 55/100 of its loans in foreign currency with redemption period of over one year.

(4) Even where sanctions are applicable under paragraph (2) or (3), where inextricable due to economic and financial circumstances domestic and abroad, the Governor may recommend exemption, suspension or removal of sanctions in effect to the FSC; provided that, for exemption, sanction subject to exemption shall not be counted toward the number of violation.

(5) In the event an institution conducting foreign exchange business fails to achieve and maintain the ratios provided under Articles 38-6 and 38-7 at least twice during the past one year period, the Governor may take actions necessary to the institutions such as shortening the length of reporting cycle provided under Article 38-14.

§38-13. Status Report on Sanctions

When imposing sanctions against an MBC under Articles 38-6 and 38-7, the Governor shall report the status of sanctions to the FSC within one month after the end of every quarter.

Section 5.

Reporting on Foreign Exchange

§38-14. Reporting

An MBC 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 in such manners as determined by the Governor.

CHAPTER VI.

INTERMEDIARY <AMENDED JULY 26, 2000>

§38-15. Definitions <Added December 29, 2000>

The terms used hereinunder this Chapter shall be defined as follows:

1. A "call transaction" means short-term money transaction between financial institutions with maturity of less than 30 days;

2. A "simple intermediation" means when an intermediary helps the consummation of transaction(s) between money lender(s) and borrower(s) for a specified commission; and

3. A "sales intermediation" means when an intermediary participates in the transaction(s) on its own account.

§38-16. Basic Principles of Transaction <Added December 29, 2000>

An intermediary shall in principle engage in simple intermediation(s). In case of call transaction intermediation, however, an intermediary may engage in sales intermediation(s) to the minimum extent necessary for the facilitation of transactions.

§39. Operation Manual of an Intermediary <Added July 26, 2000>

(1) Pursuant to Article 3 paragraph (3) subparagraph 4 of the Decree, an intermediary may include the specific details related to the matters prescribed under the following subparagraphs as "any other matters of relevance to the business operation".

1. Principles in intermediation;

2. Method of settlement;

3. Method of providing materials to the transacting financial institutions; and

4. Any other matters determined necessary by an intermediary for facilitating its intermediation operations and for the convenience of the transacting financial institutions.

(2) Article 6 shall be applicable to an intermediary, in which event "MBC" shall be substituted by "intermediary".

§39-2. Institutions Participating in the Intermediation <Added August 6, 1999>

(1) The institutions applicable under the following subparagraphs may perform money transactions with other financial institutions through intermediaries. The institutions under subparagraph 14, however, may not borrow via call transactions stipulated under Article 38-15 paragraph (1).

1. A financial institution, as under the Banking Act;

2. A special banking institution, as under the corresponding enactments;

3. An MBC and an intermediary, as under the Merchant Banking Corporation Act;

4. A mutual savings bank and the Korea Federation of Savings Banks, as under the Mutual Savings Bank Act;

5. Federation of Credit Unions, as under the Credit Union Act;

6. New Communities Savings Companies Association, as under the New Communities Savings Company Act;

7. A trust company, as under the Trust Business Act;

8. A management company, as under the Securities Investment Trust Business Act;

9. A securities company and a securities finance company, as under the Securities and Exchange Act;

10. An insurance company, as under the Insurance Business Act;

11. A credit specialized financial company, as under the Credit Specialized Financial Business Act;

12. A venture capital company, as under the Act on Supporting Establishment of Small and Medium Size Enterprises;

13. A futures trading company, as under the Futures Trading Act;

14. Public Fund Management Fund, as under the Act on Public Fund Management Fund;

15. [Deleted]

16. Any other person(s) engaged in financial business or finance-related business, as determined by the Governor.

§39-3. Asset Management Soundness of an Intermediary <Added August 6, 1999>

(1) For the purposes of maintaining the soundness of asset management, an intermediary shall not conduct any acts applicable under any one of the following subparagraphs.

1. Borrowing money beyond the amount prescribed by the Governor; and

2. Providing its assets as a collateral for other person(s).

(2) The Governor may determine specific procedures necessary for maintaining soundness of intermediaries.

§39-4. Short-term Financial Market Operation Council <Added August 6, 1999>

Intermediaries may establish a short-term financial market operation council for discussing and deliberating on such matters concerning the development and operation of the short-term financial market as, but not limited to, intermediation operation methods and standards.

CHAPTER VII.

SUPPLEMENTARY PROVISIONS <ADDED JULY 26, 2000>

§40. Assistance

(1) The Governor shall assist the FSC in its services under the following subparagraph. <Amended July 26, 2000>

1. Enforcement and implementation of the regulations or decisions of the FSC; and

2. Administration and disposition of matters delegated or directed by the FSC.

(2) With respect to the matters of delegation pursuant to Article 17-2 of the Decree, the Governor shall submit a quarterly report to the FSC on the results thereof. <Added July 26, 2000>

§41. Specifics

(1) The Governor may determine the specifics necessary for the enforcement of this Regulation.

(2) In the event the Governor determines such less significant matters or issues as specific methods, procedures and formats necessary for the enforcement of this Regulation in connection with any rules and regulations he or she prescribes for conducting the duties, such determination(s) shall be deemed as approved by the FSC pursuant to Article 39 paragraph (2) of the Act on the Establishment of Financial Supervisory Organizations.

§42. Report

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

(2) An MBC shall report any matters necessary for the enforcement of this Regulation in compliance with the terms mandated by the Governor.

§43. Application of Other Guidelines

With respect to equipment leasing business and securities investment trust business, an MBC shall comply with any provision(s) specifically applicable to MBCs pursuant to any other relevant statutes or mandate(s) and directive(s) of the Governor.

§44. Special Cases of Asset Management

(1) In the event a merchant bank intends to acquire beneficiary certificates of a securities investment trust or stocks of a securities investment company for the purposes of entrusting a trustee company established under the Securities Investment Trust Act or an asset management company established under the Securities Investment Company Act (hereinafter, "the asset manager") with the asset management, each of the following standards 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 merchant bank, 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 5-3 of the Act and Article 6 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 perfor-mance 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 merchant bank, i.e., securities, and the privately placed single funds; and

e. Matters needed for the sound asset management by other merchant banks.

(2) In the event the merchant bank holds "the privately placed single fund's beneficiary certificates or stocks," the assets of the privately placed single fund in question shall provide the basis for the application of the provisions of Article 4-3, Article 17, and Article 25 paragraph (1) subparagraph (1).  The same shall apply with respect to the merchant bank reaching any specific monetary trust agreement with a trust company established under the Trust Business Act in accordance with Article 3 paragraph (2) subparagraph (1) of the Enforcement Decree of the Trust Business Act.

(3) 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 merchant bank (hereinafter, "the publicly placed single fund"), the provisions of paragraph (1) subparagraphs 2 and 3 and paragraph (2) shall be applied mutatis mutandis. <Added January 3, 2003>

Addenda

§1. Effective Date

This Regulation shall be effective on April 1, 1998.

§2. Interim Measures

(1) In the event of excess of the debt ceiling provided under Article 15 while this Regulation is in force, an MBC shall conform to the ceiling(s) therein within three years from the date when this Regulation is applicable. Excess of the ratio of liabilities against the equity capital of an MBC as of the effective date of this Regulation shall not be permitted, however.

(2) The ratio prescribed in Article 25 paragraph (1) subparagraph 1 shall be applied as 'over 4/100' until June 340, 1998, 'over 6/100' until June 30, 1999, and 8/100 thereafter.

(3) The first clause of Article 19 paragraph (2) shall not apply to the unsecured notes sold before the effective date of this Regulation.

§3. Interim Measures Concerning the Authority and Duties of the FSS

Until the establishment of the Financial Supervisory Service (FSS), the 'Governor' in this Regulation shall be viewed as the Chief Director of Credit Management Fund, and the FSS as the Credit Management Fund. However, the Governor from Articles 35 through Article 37 shall be viewed as the Governor of the Bank Supervisory Service and the FSS as the Bank Supervisory Service.

Addendum

(June 12, 1998)

This Regulation shall be effective on June 12, 1998.

Addendum

(October 9, 1998)

This Regulation shall be effective on October 9, 1998.

Addendum

(December 11, 1998)

This Regulation shall be effective on December 12, 1998.

Addenda

(March 26, 1999)

§1. Effective Date

This Regulation shall be effective on March 27, 1999.

§2. Interim Measures on Management Performance Evaluation

The evaluation of management performance prescribed under Article 29 shall be effective from January 1, 2000.

§3. Interim Measures on Application of the Equity Capital Ratio for Prompt Corrective Action

In application of the ratio of equity capital against the risk-weighted assets prescribed under Article 30 paragraph (1) subparagraph 1 and Article 30-2 paragraph (1) subparagraph 1, before June 30. 1999, the ratio under Article 30 paragraph (1) subparagraph 1 shall be "below 6/100", and the ratio under Article 30-2 paragraph (1) subparagraph 1 shall be "below 4/100".

§4. Interim Measures on Deferred Write-offs of Losses Related to Corporate Restructuring

(1) An MBC, whose ratio of equity capital against the risk-weighted assets is 2/100 or above, and which is capable of maintaining that ratio at 8/100 or above (6/100 before the end of June 1999) only through the equal write-offs of losses on a quarterly basis pursuant to the method prescribed under subparagraph 1 below, shall submit to the Governor, within one month from the end of the quarter in which the corresponding event(s) occurs, its management rehabilitation plan which shall be reflective of the matters applicable under each of the following subparagraphs.

1. Details of equal write-offs on a quarterly basis through March 31. 2002, of corporate restructuring related losses, whose amount has been determined before June, 30. 1999 (corresponding to the losses incurred in connection with the loans extended to the enterprises applicable under Article 17-2 subparagraphs 1 through 5; hereinafter, "loss");

2. Substance of the measures prescribed in each subparagraph of paragraph (2); and

3. Any other issues or matters as recommended or requested by the Governor.

(2) In the event the Governor approves the management rehabilitation plan submitted pursuant to paragraph (1), he or she shall take measure(s) applicable under each of the following subparagraphs until such plan is fully implemented. Article 30 paragraph (2), Article 30-2 paragraph (2) and Article 30-7, in this event, shall not apply.

1. Prohibition of international business operations (excluding such business operations requiring further attention as, but not limited to, performance of obligations, including redemption of debts, arising from contracts entered into in connection with the international business operations to the extent the cause of the transaction(s) is terminated, or exercise of rights for the purposes of preserving the value of holding assets);

2. Restriction on increasing assets; and

3. Any other measures necessary such as restriction on expansion into new business area.

§5. Interim Measures on MBCs with Substandard Ratio of Equity Capital

(1) An MBC, whose ratio of equity capital against the risk-weighted assets (hereinafter, "equity capital ratio"), in the event of lump-sum write-off(s) of losses, is below 2/100, or whose equity capital ratio falls under 8/100 (6/100, before the end of June, 1999), though 2/100 or above, after equal writing off on a quarterly basis pursuant to the method provided under Article 4 paragraph (1) of this Addenda, shall be subjected to the measures under the following subparagraphs.

1. An MBC whose net asset value is below zero: immediate suspension of business operation;

2. An MBC whose equity capital ratio is in between 0 and 2/100: management improvement request pursuant to Article 30-2 (including the measures provided under each subparagraph of Article 4 paragraph (2) of this Addenda); and

3. An MBC, whose equity capital ratio is 2/100 or above, or whose equity capital ratio falls under 8/100 (6/100, before the end of June, 1999) after equal write-off(s) on a quarterly basis, or whose management improvement plan(s) submitted pursuant to Article 4 paragraph (1) of this Addenda is not approved: the measures provided under Article 30 paragraph (2) and each subparagraph of Article 4 paragraph (2) of this Addenda.

(2) After taking immediate suspension of business operation against an MBC applicable under paragraph (1) subparagraph 1, the FSC shall have an accounting firm evaluate the net assets value of the MBC within two months from the date of the suspension.

(3) In the event an MBC subject to the evaluation of its net assets value pursuant to paragraph (2) is adjudged as in default of payment, and whose capital is not increased within thirty days thereafter, the FSC shall request the Ministry of Finance and Economy to revoke the authorization for the MBC in question.

§6. Interim Measures on Measures Taken by the Ministry of Finance and Economy

Any measures taken by the Ministry of Finance and Economy, the FSC, or the Governor pursuant to the "Directives for Management Rehabilitation of MBCs (March 21, 1998)" prescribed by the Ministry of Finance and Economy, shall be deemed to have been taken by the FSC or the Governor respectively, if any corresponding provision(s) thereto exists.

Addendum

(August 6, 1999)

This Regulation shall be effective on October 6, 1999.

Addendum

(September 10, 1999)

This Regulation shall be effective on September 10, 1999.

Addenda

(December 24, 1999)

§1. Effective Date

This Regulation shall be effective on January 1, 2000. The management performance evaluation prescribed in Article 29 paragraph (2), however, shall be performed from the first business year that starts after the effective date of this Regulation.

§2. Submission of Mid-Long Term Plan

An MBC shall establish mid-long term plan(s) for building and operating a comprehensive risk management system, which shall be submitted to the Governor by the end of December in 1999.

Addenda

(June 9, 2000)

§1. Effective date

This Regulation shall be effective on June 30, 2000.

§2. Exception to Asset Classification of Companies Subject to the Corporate Work-Out Program [Deleted February 14, 2001]

Addendum

(July 26, 2000)

This Regulation shall be effective on the date of promulgation.

Addendum

(October 6, 2000)

This Regulation shall be effective on the date of promulgation.

Addenda

(December 29, 2000)

§1. Effective Date

This Regulation shall be effective on January 1, 2001.

§2. Repeal of Provisions

The provisions under the following subparagraphs shall be repealed simultaneously as this Regulation is effective.

1. Regulation on Sales of Short Term Financial Products of Merchant Banking Corporations by Foreigner; and

2. Provisions concerning MBCs in Regulation on the Supervision of Foreign Exchange Business.

§3. General Interim Measures

Any act(s) made under the Regulation on Sales of Short Term Financial Products of Merchant Banking Corporations by Foreigners and the Regulations on the Supervision of Foreign Exchange Business, shall be viewed as in compliance with this Regulation.

§4. Revision of Other Regulations

Any references to the 'Regulation on the Supervision of Merchant Banking Corporations' by any other regulations while this Regulation is effective, shall be viewed as made with respect to the Regulation on the Supervision of Merchant Banking Business.

Addendum

(February 14, 2001)

This Regulation shall be effective on the date of promulgation.

Addendum

(March 14, 2001)

This Regulation shall be effective on the date of promulgation.

Addenda

(September 1, 2001)

§1.  Effective Date

This Regulation shall be effective on September 30, 2001.

§2. Interim Regulation

Article 38-12 shall not be applied to whomever in violation of the amended provisions of Article 38-7 and its enforcement rules and regulations from the date of the promulgation of this Regulation until December 31, 2001.

Addendum

(October 4, 2002)

§1. Effective Date

This Regulation shall be effective on the date of promulgation.

Addenda

(November 13, 2002)

§1. Effective Date

This Regulation shall be effective on the date of promulgation.

§2. Interim Measure

In the event an MBC becomes subject to the submission of a resolution plan pursuant to the amended provisions of Article 30-8 by reason of causes prior to the date of the promulgation of this Regulation, it shall submit the plan within one month from the date of the promulgation of this Regulation.

Addendum

(December 19, 2001)

This Regulation shall be effective on January 1, 2002.

Addendum

(May 1, 2002)

This Regulation shall be effective on the date of promulgation.

Addenda

(January 3, 2003)

§1. Enforcement Date

This Regulation shall be effective on the date of promulgation. The provisions of "Article 25 paragraph (1) subparagraph 1" of Article 44 paragraph (2), however, shall be effective on April 1, 2003.

§2. Applicable Cases

With respect to the application of the amended provisions of Article 44 to the privately or publicly placed single funds established prior to the enforcement of this Regulation, Article 44 paragraph (1) subparagraph 2 shall apply with respect to the acquisition of beneficiary certificates or stocks of the privately or publicly placed single funds following the enforcement of this Regulation.

§3. Interim Measures for Special Cases on the Asset Management

The merchant bank in excess of the investment ceilings stipulated under the amended provisions of Article 44 paragraph (2) upon the enforcement of this Regulation shall ensure that the ceilings are observed within 3 months from the enforcement.

Addendum

(July 29, 2003)

This Regulation shall be effective on the date of promulgation.