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

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

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

4. 1. New Securitized Assets by each year
Sep Dec 00
Enacted First Corporate Receivable
Dec Aug Jan 01
First Private First P-CBO First Venture P-CBO
First Offshore Receivable in $ First C-Card
First Korean Cross-Border KAMCO NPL $
Mar 01
Jan Mar First Credit Card
First Public Issue First KoMoCo MBS Dec 01
Feb First Revolving Credit Card
Jun First S-CBO
First Auto Dec 02
First KAMCO First $ MBS

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

6. Who securitized ?

7. Who securitized ?

8. Who securitized ?

9. 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

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

11. 1. Definition of NPL Loan Categories; Normal (正常, 정상 )
Special Mention (關注, 요주의)
Substandard (次級, 고정) NPLs
Doubtful (可疑, 회수의문) NPLs
Estimated Loss (損失, 추정손실) NPLs
Criterion Change
A loan was Substandard if 6 months delinquent;
from June months delinquent
Korea adopted the Forward Looking Criteria since 2000
analyzing borrower’s repaying ability
effected increase of NPL

12. 2. Troubled Loan by Banks 32.5 trillion (1997) 18.8 trillion (2001)
Increase : (trillion won)
Criterion Change 44.5
New
32.5 trillion
(1997)
18.8 trillion
(2001)
Decrease : (trillion won)
by KAMCO
by Banks

13. 3. Why KAMCO was involved in NPL Disposition
Credit Crunch
NPLs hinder banks’ lending activity
If nothing is done, NPLs get worse each day, Recovery decreases continuously
Korean government restructured banks, and banks restructured corporate clients
-> Korean government purchased NPLs from banks through
KAMCO
KAMCO, as a Korean national “Bad Bank” pioneered NPL resolution
-> The experience will be re-deployed for current Credit Card
Problems

14. 4-1. Korean NPL Disposition
(In billion US$)
28.55%
9.08%
2.81%
30.08%
58.15%
100%
(A) / (C)
151,347.6
42,008.5
36,931.7
25,798
38,264.1
8,345.3
Total (C)
108,130.3
38,192.2
35,891
18,036.9
16,010.2 -
Banks (B)
43,217.3
3,816.3
1,040.7
7,761.1
22,253.9
KAMCO (A)
Total
2001
2000
1999
1998
1997

15. 4-2. KAMCO Pioneered NPL Securitization
KAMCO pioneered and banks followed
KAMCO tried to sell NPL from late 1998 but no domestic demand existed
Only demand was from American Distressed Debt Investors
1999~2000:KAMCO created market for bulk sale targetting foreign investors
KAMCO established JV NPL investment vehicle with private investors
KAMCO issued public and private ABSs
2000~2001: Banks followed KAMCO’s sale method
: Domestic investors started to follow foreign investors
NPL securitization market can not develop on its own - needed government level support at early stage

16. 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
International Bidding
5.07
1.09
1.34
9.41%
ABS Issuance
6.68
3.52
3.48
12.41%
Sale to AMC
2.15
0.55
0.77
3.99%
Sale to CRC
1.54
0.30
0.56
2.86%
Individual Loan Sales
2.16
0.53
0.76
4.01%
Court Auction, Public Sales
6.92
2.19
2.69
12.85%
Collection
10.54
3.56
4.94
19.58%
Daewoo Held
2.73
1.86
2.22
5.07%
Sub Total
37.80
13.60
16.75
70.18%
Recourse & Cancellation
16.06
8.47
8.47
29.82%
Total
53.86
22.07
25.23
100.00%
* Non-Cash Resolution (Debt-equity swap) : USD 8.65 billion

17. 5. Why Securitization for NPL?
Seller’s Side
1. Off Balance Sheet Effect and BIS Capital Release
2. Diversified Loan Pool is easier to sell than Individual Loan
3. Credit Guarantors prefer to guarantee partially for a
securitized pool than Individual Loan
4. Easier Legal Structure for foreign investors
Investor’s Side
Possible leverage if senior tranche is sale-able

18. Asset Management Contract
6. Joint Venture SPC with Private investor
Seller
Investor
NPLs 100%
50%
cash
50%Cash+
50%ABS
50%
ABS
SPC
Seller 50% : Investor 50%
Asset Management Contract
Asset Manager
Seller and Investor form a JV to warehouse NPL for future resolution through disposal, restructuring and securitization

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

20. 1. Sophisticated Structure: Two Tier
First Level Entity :
Local Entity in capital importing country
Company or Trust as applicable
Must achieve ‘local rating’ acceptable to international rating
agency
Second Level Entity:
Domiciled in Offshore Financial Center (Cayman Island etc) for
international issuance

21. Other Asian Countries need Securitization Market
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
In addition to Subordination (internal credit support), sufficient external credit support is required
In Korea, Third Party Banks (with less NPL problem) partially guaranteed NPL securitization
Also, Korea Credit Guarantee Fund provided partial guarantee to P-CBOs
Government supported credit guarantee program is pre-requisite for pooling NPL

22. 3. Joint pooling of Multiple Countries
For NPL, the borrowers are in financial trouble, but they may be
strategic corporations in the “Core Industries”of the country
Government supports in those industries are inevitable
Pooling and supporting Asia-Pacific industries together might be better than
individual country level support
May be easier to invite private investment bankers and vulture investors’
participation
KAMCO proposed joint pooling of Asian NPL and SME Loans to
APEC/ASEAN+3 countries .

23. 4-1. Proposed structure Goal: Means:
Facilitate disposal of NPLs and SME industrial financing in the region by mobilizing savings from capital-abundant countries
Means:
Adopt securitization with proper risk sharing
Countries participate voluntarily

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

25. 5. How to harmonize between countries
Different Financial and legal cultures exist between participating countries
Korea & Japan : ABS law well-established and ABS market volume
achieved
China : Only Trust Law is available
Thailand, Malaysia, India, Philippines : ABS law and market volume
developing
Accounting, tax and bankruptcy systems are also different
Every country has unique client relationship and service(loan collection)
culture
NPL provisioning and recovery level is also different
Harmonization at FIRST TIER level is necessary, but difficult to achieve
SECOND TIER is required as ‘SAFE ZONE’.