FSC Press Release July 24, 1998

Finalization of P&A Terms and Conditions


□ Financial Supervisory Commission held a regular meeting on Friday, July 24, 1998 and completed final deliberations regarding purchase and assumption arrangement terms and conditions with the 5 acquiring banks taking over banks that were forced to close down on June 29th

□ Main Features

o Fiscal support will be provided as a way to prevent the deterioration of the acquiring bank's financial structure subsequent to taking over resolved bank's assets and liabilities

· Only good assets and liabilities will be transferred to the acquiring banks and also a put-back option will be provided to the acquiring banks to sell back to the Korea Asset Management Corporation (KAMC) any assets that turn bad within a 6 month period subsequent to business transfer (within a 6 month period from the date the size of the assets and liabilities transferred is fixed after the due diligence)

· Furthermore, capital will be injected to the acquiring banks to the extent necessary to prevent the deterioration of acquiring bank's BIS ratio as a result of taking on resolved bank's assets, whereas KAMC will purchase some of the acquiring bank's bad assets as well.

o Bad assets of the resolved banks will be purchased by KAMC at market price (in the absence of market price past collection rates will be applied) and payment will be made to the acquiring banks accordingly

· Payment will be made within 3 months subsequent to the business transfer order date (June 29th) by providing bonds issued by KAMC (Non-performing Assets Disposal Fund)

※ Maturity ; 5 years, interest term ; every 3 months, interest rate ; average rate of return for benchmark bond (national housing bond type 1) for 1 month period prior to interest payment date

o In the case the sum of the valuation amount of transferred good assets and payment from KAMC is less than the valuation amount of liabilities, such difference will be covered by the Korea Deposit Insurance Corporation (KDIC) in a manner to be determined by the Financial Supervisory Commission

· Valuation of assets and liabilities will be conducted by an accounting firm that is co-appointed by the each acquiring bank/resolved bank pair and approved by KDIC, utilizing standards close to international accounting practice

o Assets and liabilities to be transferred : attachment


□ Assets to be transferred : only good assets (that is, assets other than those classified as substandard and below) except for assets falling under the following will be transferred

1. Assets needed to payout retirement benefits to employees of resolved banks

2. Assets pertaining to liabilities toward priority preference such as national tax

3. Loans to employees of resolved banks (except for collateralized housing loans)

4. Assets used as collateral to a third party

5. Assets under court proceedings

6. Assets to be transferred to KAMC (NPLs)

7. Capital subscription and credit toward subsidiaries that the acquiring banks decide not to take over

8. Assets with incomplete loan documents (including collateral)

9. Loans and securities toward emergency loan recipients

□ Liabilities to be transferred : includes all liabilities except for liabilities falling under the following

1. Retirement benefit allowance

2. Liabilities of resolved banks that are not related to banking business (eg.: expenses payable)

3. Liabilities under court proceedings

4. Korean Won denominated guarantees, which has not been claimed for repayment

□ Assets to be taken over by KAMC

- Assets classified as substandard, doubtful or estimated loss in accordance to provisions under article 30 of the Banking Supervisory Regulation

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Structural Reform Planning Unit

Financial Supervisory Commission

Seoul, Korea