Korean Korean Experience Experience of of

Korean Korean Experience Experience of of Securitization Securitization and and NPL NPL Disposition Disposition Korea Asset Management Corporation

Table of Contents I.I. Korean Korean Securitization Securitization and and KAMCO KAMCO II. II. KAMCO’s KAMCO’s NPL NPL Securitization Securitization III. III. Future Future of of NPL NPLSecuritization Securitization Korea Asset Management 2

I.I. Korean Korean Securitization Securitization 1. 1. New New Securitized Securitized Assets Assets by by Each Each Year Year 2. 2. Loans Loans and and Bonds Bonds as as Major Major Source Source of of Securitization Securitization 3. 3. Who Who securitized securitized in in Korea? Korea? 4. 4. Lessons Lessons from from Korean Korean Experience Experience Korea Asset Management 3

1. 1.New NewSecuritized SecuritizedAssets Assetsby byeach eachyear year Sep 98 Sep 98 Enacted Enacted Dec 98 Dec 98 First Private First Private First Offshore Receivable in First Offshore Receivable in Jan 99 Jan 99 First Public Issue First Public Issue Jun 99 Jun 99 First Auto First Auto First FirstKAMCO KAMCO 1998 1998 1999 Korea 1999 Asset Dec 00 Dec 00 First Corporate Receivable First Corporate Receivable Aug 00 Jan 01 Aug 00 Jan 01 First P-CBO First Venture P-CBO First P-CBO First Venture P-CBO First C-Card First C-Card First Korean Cross-Border KAMCO NPL First Korean Cross-Border KAMCO NPL Mar 01 Mar 01 Mar 00 First Credit Card Mar 00 First Credit Card First KoMoCo MBS Dec 01 First KoMoCo MBS Dec 01 Feb 00 First Revolving Credit Card Feb 00 First Revolving Credit Card First S-CBO First S-CBO Dec 02 Dec 02 First MBS First MBS 2000 2000 Management 2001 2001 2002 2002 4

2. 2.Loans Loansand andBonds Bondsas asMajor MajorSources Sourcesof ofSecuritization Securitization (In 100 MIL KRW) (In 100 MIL KRW) Underlying S-CBO P-CBO Other Securities Security Total Loans Lease, Auto MBS Land Receivable Credit Card Corporate Receivable Others 1999 2000 - 2001 2002 5,317 204,154 73,073 9,157 5,317(7.9%) 286,384(1.9%) 86,539(17%) 19,362(4.9%) 20,526(10.8%) 30,012 9,330 103,118 24,784 13,788 2,260 39,801 9,724 2,063 146,922 9,858 8,380 5,913 206,040 36,279 600 36,968 45,997 9,515 12,744 57,804 3,100 5,627 2,460 9,413 - 11,133 75,406 2003. 6 - 11,670 7,692 - 9,150 11,376 - - 221,656 57,522 1,119 69,196 18,738 - Loans Total 56,842(83.9%) 159,538(39.6%) 413,992(81.3%) 372,777(93.6%) 161,582(85.4%) Real Estate 5,550 11,910 8,811 6,135 7,193 Total (100%) 67,709 493,832 509,342 398,274 189,301 Korea Asset Management 5

Who securitized ? 1999 Banks 11.49% Securit 3.39% Ins urers 5.19% Cons umer Lender 26.71% KAMCO 29.52% Corporates 3.68% Korea Asset Management Merchant 1.99% 6

Who securitized ? 2000 Corporates 1.91% Others 3.30% KAMCO 9.96% KDIC 1.06% Others 1.61% Banks 12.52% Merchant 1.10% Inv Trust 37.61% Consumer Lender 12.50% Insurers 1.15% Securit 17.29% Korea Asset Management 7

Who securitized ? 2001 Corporates 8.11% KAMCO 2.71% KDIC 1.91% Banks 23.68% Others 1.49% Mer c h 0.85% Inv Trusts 0.12% k Insurers 1.50% Consumer Lender 42.17% Korea Others 1.16% Asset Management Securit 16.30% 8

Lessons from Korean Experiences Lesson 1 : Securitization evolves as market need arises USA : Mortgage Lease/Cards Junk Bonds/CBOs Future Cash Flows Korea : NPLs CBOs Cards Future Cash Flows Lesson 2 : Securitization can be an effective policy tool for overcoming credit crunch problems (or credit quality gap) Lesson 3 : Public sectors can facilitate securitization Beware: Basel II will make NPL ABS much difficult Korea Asset Management 9

II. II. KAMCO’s KAMCO’s NPL NPL Securitization Securitization 1. 1. Definition Definition of of NPL NPL 2. 2. Troubled Troubled Loan Loan by by banks banks 3. 3. Why Why KAMCO KAMCO was was involved involved in in NPL NPL Disposition Disposition 4. 4. KAMCO’s KAMCO’s NPL NPL Securitization Securitization 5. 5. Why Why Securitization Securitization for for NPL? NPL? 6. 6. JV-SPC JV-SPC with with private private investor investor Korea Asset Management 10

1. Definition of NPL Loan Categories; Normal ( 正常 , 정상 ) Special Mention ( 關注 , 요주의 ) Substandard ( 次級 , 고정 ) Doubtful ( 可疑 , 회수의문 ) Estimated Loss ( 損失 , 추정손실 ) NPLs NPLs NPLs Criterion CriterionChange Change AA loan loanwas wasSubstandard Substandardifif66months monthsdelinquent; delinquent; from 33months fromJune June1998 1998 monthsdelinquent delinquent Korea Koreaadopted adoptedthe theForward ForwardLooking LookingCriteria Criteriasince since2000 2000 analyzing analyzingborrower’s borrower’srepaying repayingability ability effected effectedincrease increaseof ofNPL NPL Korea Asset Management 11

2. Troubled Loan by Banks Increase : 137.6 (trillion won) Criterion Change 44.5 New 93.1 32.5 trillion (1997) 18.8 trillion (2001) Decrease : 151.3 (trillion won) by KAMCO 43.2 by Banks 108.1 Korea Asset Management 12

3. Why KAMCO was involved in NPL Disposition NPLs NPLshinder hinderbanks’ banks’lending lendingactivity activity Credit Crunch Credit Crunch IfIfnothing nothingisisdone, done, NPLs NPLsget getworse worseeach eachday, day,Recovery Recovery decreases continuously decreases continuously Korean Koreangovernment governmentrestructured restructuredbanks, banks,and andbanks banks restructured corporate clients restructured corporate clients - - Korean Koreangovernment government purchased purchasedNPLs NPLsfrom frombanks banksthrough through KAMCO KAMCO KAMCO, KAMCO,as asaaKorean Koreannational national“Bad “BadBank” Bank”pioneered pioneeredNPL NPL resolution resolution - - The Theexperience experiencewill willbe bere-deployed re-deployedfor forcurrent currentCredit CreditCard Card Problems Problems Korea Asset Management 13

4-1. Korean NPL Disposition (In billion US ) (In billion US ) 1997 1998 1999 2000 2001 Total KAMCO (A) 8,345.3 22,253.9 7,761.1 1,040.7 3,816.3 43,217.3 Banks (B) - 16,010.2 18,036.9 35,891 38,192.2 108,130. 3 Total (C) 8,345.3 38,264.1 25,798 36,931.7 42,008.5 151,347. 6 (A) / (C) 100% 58.15% 2.81% 9.08% 28.55% Korea Asset 30.08% Management 14

4-2. KAMCO Pioneered NPL Securitization KAMCO KAMCOpioneered pioneeredand andbanks banksfollowed followed KAMCO KAMCOtried triedtotosell sellNPL NPLfrom fromlate late1998 1998but butno nodomestic domesticdemand demandexisted existed Only Onlydemand demandwas wasfrom fromAmerican AmericanDistressed DistressedDebt DebtInvestors Investors 1999 2000:KAMCO created market for bulk sale targetting foreign investors 1999 2000:KAMCO created market for bulk sale targetting foreign investors KAMCO KAMCOestablished establishedJV JVNPL NPLinvestment investmentvehicle vehiclewith withprivate privateinvestors investors KAMCO KAMCOissued issuedpublic publicand andprivate privateABSs ABSs 2000 2001: Banks followed KAMCO’s sale method 2000 2001: Banks followed KAMCO’s sale method 2002 : : Domestic 2002 Domesticinvestors investorsstarted startedtotofollow followforeign foreigninvestors investors NPL NPLsecuritization securitizationmarket marketcan cannot notdevelop developon onits itsown own- -needed neededgovernment governmentlevel levelsup sup port at early stage port at early stage Korea Asset Management 15

4-3.KAMCO NPL Resolution Methods KAMCO Has Acquired USD 91.77bn in NPLs and Has Resolved USD 53.86bn Since November 1997. (USD 1 KRW 1,200) (As of December 31, 2002, in billion U.S. Dollars) Resolution Methods Accumulated Resolution Ratio Face Value Purchase Value Recovery Value Collection Daewoo Held Sub Total Recourse & Cancellation 5.07 6.68 2.15 1.54 2.16 6.92 10.54 2.73 37.80 16.06 1.09 3.52 0.55 0.30 0.53 2.19 3.56 1.86 13.60 8.47 1.34 3.48 0.77 0.56 0.76 2.69 4.94 2.22 16.75 8.47 9.41% 12.41% 3.99% 2.86% 4.01% 12.85% 19.58% 5.07% 70.18% 29.82% Total 53.86 22.07 25.23 100.00% International Bidding ABS Issuance Sale to AMC Sale to CRC Individual Loan Sales Court Auction, Public Sales * Non-Cash Resolution (Debt-equity swap) : USD 8.65 billion Korea Asset Management 16

5. Why Securitization for NPL? Seller’s Seller’sSide Side 1.1.Off OffBalance BalanceSheet SheetEffect Effectand andBIS BISCapital CapitalRelease Release 2.2.Diversified DiversifiedLoan LoanPool Poolisiseasier easierto tosell sellthan thanIndividual IndividualLoan Loan 3.3.Credit CreditGuarantors Guarantorsprefer preferto toguarantee guaranteepartially partiallyfor for aa securitized securitizedpool poolthan thanIndividual IndividualLoan Loan 4.4.Easier EasierLegal LegalStructure Structurefor forforeign foreigninvestors investors Investor’s Investor’sSide Side Possible Possibleleverage leverageififsenior seniortranche trancheisissale-able sale-able Korea Asset Management 17

6. Joint Venture SPC with Private investor Seller Investor NPLs 100% 50% 50%Cash 50%ABS SPC cash Seller 50% : Investor 50% 50% 50% ABS ABS Asset Management Contract Asset Manager Seller Sellerand andInvestor Investorform formaaJV JVtotowarehouse warehouseNPL NPLfor forfuture futureresolution resolutionthrough through disposal, restructuring and securitization disposal, restructuring and securitization Korea Asset Management 18

III. III. Future Future of of NPL NPL Securitization Securitization 1. 1. Sophisticated Sophisticated Structure: Structure: Two Two Tier Tier 2. 2. Securitization Securitization and and Credit Credit Guarantees Guarantees are are priority priority for for Asian Asian Countries Countries 3. 3. Joint Joint pooling pooling of of Multiple Multiple Countries Countries 4. 4. Proposed Proposed Structure Structure 5. 5. How How to to harmonize harmonize between between countries countries Korea Asset Management 19

1. Sophisticated Structure: Two Tier First Level Entity : First Level Entity : Local LocalEntity Entityinincapital capitalimporting importingcountry country Company Companyor orTrust Trustas asapplicable applicable Must Mustachieve achieve‘local ‘localrating’ rating’acceptable acceptableto tointernational internationalrating rating agency agency Second Level Entity: Second Level Entity: Domiciled Domiciledin inOffshore OffshoreFinancial FinancialCenter Center(Cayman (CaymanIsland Islandetc) etc)for for international internationalissuance issuance Korea Asset Management 20

2. Securitization and Credit Guarantees are priority for Asian Countries Other Asian Countries need Securitization Market But they lack credit, local bond market and FX swap InInaddition additionto toSubordination Subordination(internal (internalcredit creditsupport), support),sufficient sufficientex ex ternal ternalcredit creditsupport supportisisrequired required InInKorea, Korea,Third ThirdParty PartyBanks Banks(with (withless lessNPL NPLproblem) problem)partially partiallyguar guar anteed anteedNPL NPLsecuritization securitization Also, Also,Korea KoreaCredit CreditGuarantee GuaranteeFund Fundprovided providedpartial partialguarantee guaranteeto to P-CBOs P-CBOs Government Governmentsupported supportedcredit creditguarantee guaranteeprogram programisispre-requisite pre-requisitefor for pooling poolingNPL NPL Korea Asset Management 21

3. Joint pooling of Multiple Countries For ForNPL, NPL,the theborrowers borrowersare areininfinancial financialtrouble, trouble,but butthey theymay maybe be strategic strategiccorporations corporationsininthe the“Core “CoreIndustries”of Industries”ofthe thecountry country Government Governmentsupports supportsininthose thoseindustries industriesare areinevitable inevitable Pooling Poolingand andsupporting supportingAsia-Pacific Asia-Pacificindustries industriestogether togethermight mightbe bebetter betterthan than individual individualcountry countrylevel levelsupport support May Maybe beeasier easierto toinvite inviteprivate privateinvestment investmentbankers bankersand andvulture vultureinvestors’ investors’ participation participation . KAMCO KAMCOproposed proposedjoint jointpooling poolingof ofAsian AsianNPL NPLand andSME SMELoans Loansto to APEC/ASEAN 3 APEC/ASEAN 3countries countries Korea Asset Management 22

4-1. Proposed structure Goal: Goal: Facilitate Facilitatedisposal disposalof ofNPLs NPLsand andSME SMEindustrial industrialfinancing financing in inthe theregion regionby bymobilizing mobilizingsavings savingsfrom fromcapital-abundant capital-abundant countries countries Means: Means: Adopt Adoptsecuritization securitizationwith withproper properrisk risksharing sharing Countries Countriesparticipate participatevoluntarily voluntarily Korea Asset Management 23

4-2. Proposed structure Country A NPL Loans/ Bonds Country B NPL Loan/ Bonds Senior Junior SPC in Country D (Capital Abundant Country) Senior Junior Senior Credit guarantee/Swap Junior Gov’t Agency in Country D Country C NPL Loan/ Bonds Korea Senior Junior Asset Management 24

5. How to harmonize between countries Different DifferentFinancial Financialand andlegal legalcultures culturesexist existbetween betweenparticipating participating countries Korea & Japan : ABS law well-established and ABS market volume countries Korea & Japan : ABS law well-established and ABS market volume achieved achieved China : Only Trust Law is available China : Only Trust Law is available Thailand, Malaysia, India, Philippines : ABS law and market volume Thailand, Malaysia, India, Philippines : ABS law and market volume developing developing Accounting, tax and bankruptcy systems are also different Accounting, tax and bankruptcy systems are also different Every country has unique client relationship and service(loan Every country has unique client relationship and service(loan collection) collection) culture culture NPL NPLprovisioning provisioningand andrecovery recoverylevel level isisalso alsodifferent different Harmonization at FIRST TIER level is necessary, but difficult to achieve SECOND TIER is required as ‘SAFE ZONE’. Korea Asset Management 25