financial restructuring and its impact on the banks and nbfis.pdf

Financial Restructuring and Its Impact on the Banks and NBFIs in Korea Yoon Je Cho Sogang University Draft July 2002 * This paper will be presented at the Regional Seminar on NBFIs in East Asia, to be held in Bankok, Thailand, September 4-6. It is partly based on Chapter 5 of my paper, “Financial Repression, Liberalization, Crisis, and Restructuring: Lessons of Korea’s Financial Sector Policies,” to be published by the ADB Institute. An earlier version of this paper was presented at the conference, “How to Strengthen Banks and Develop Capital Markets in Post-Crisis Asia,” co-sponsored by the ADB Institute, Keio University, and PECC/FMD Committee, held in Tokyo, June 6-7 2002. I am grateful to participants of the conference for helpful comments and Sang-Hee Um for research assistance. 2 Introduction After the 1997 crisis, the Korean financial sector w e n t through a drastic and comprehensive restructuring. This restructuring is not complete yet. But, compared to what was done in other countries which faced similar cris es, Korea perhaps has carried out the most comprehensive and far- reaching financial restructuring. Owing to various measures taken during the last four years, the soundness, efficiency, and profitability of financial institutions have been substantially improved. However, financial restructuring also raised questions regarding the role of financial sector in supporting long-term and risky investments by industrial firms while banks become more autonomous