Hana Insight (Hana Institute of Finance) - Issue#3

Table of Contents
Feature
01 How Do Korea's HNWIs Manage Their Wealth?
Warren Park, Juneun Kang
Issues
11
How Much a Threat Is Korea's Household Debt?
Wanjoong Kim, Warren Park

17 Korea's Real Estate Project Finance Market: Diagnosis and Remedies
Jeungrak Sohn
23 Big Changes Afoot for Korea's Financial Industry
Jaeman Song, Warren Park

30 Korea's Long-Term Solar Prospects Shine Bright
Hyeyoung Ahn
Market Watcher
35
Interest Rates: Rates to be kept on hold for an extended period
Wanjoong Kim
37 Exchange Rate: As uncertainties dissipate, a gradual strengthening of the KRW is expected
Yootag Jung
39 Equities: A weak start in 2Q should pave the way to a stronger finish
Yonghyun Cho, Hana Daetoo Securities
Feature
How Do Korea's HNWIs Manage Their Wealth?

As Korea's financial services firms have come to realize, providing wealth management (WM) services to high net worth individuals (HNWIs) can be a good way of generating a steady stream of high-margin income. And given that Korea's HNWI population and wealth levels continue to grow at a steady pace, it is no surprise that interest in the market has been on the rise. As competition heats up in the market, banks and other financial institutions will need to provide WM services tailored to the unique needs of their clients. Customer surveys such as the one conducted recently by Hana Bank and the Hana Institute of Finance can help such firms in acquiring a better understanding of HNWIs' attitudes toward their wealth and investing.
Warren Park,
Senior Researcher
Juneun Kang,
Associate Researcher
Hana Bank's recent survey provides insights into the attitudes of Korea's wealthy toward investing
In late 2011, Hana Bank and the Hana Institute of Finance conducted a month-long survey of Hana Bank's private-banking clients to determine their attitudes toward their wealth as well as how they manage it. The
survey was part of a general trend of Korean financial institutions trying to gain deeper insight into Korea's HNWIs and using it to provide improved service to their wealth management clients. This article provides a summary of the survey's key findings along with some implications.
[Figure 1] Whom Survey Respondents Consider "Wealthy" by Level of Wealth

2% 16% 21% 12% 65% 48% 27% All Respondents Total Assets \5bn or Above Total Assets Below \5bn \10bn or Above 12% 12% 11% 34% \5-7bn 14% \7-10bn 21% Below \3bn \3-5bn 4%
Source: Hana PB Survey 2011
Mar 2012 Hana Insight
The Hana PB Survey targeted customers in the Private Banking (PB) unit of Hana Bank who have financial assets of 1.0 billion or more, and questioned them on a range of topics, including their attitudes toward investing, wealth management, retirement, gifts and inheritances, spending and lifestyle. Three hundred seventy-nine people participated in the survey. Their responses were broken down and analyzed in terms of factors such as level of wealth, age, and area of residence, and the results were published in February in a report titled "Wealth Management of Korea's Wealthy Class."
Whom do Hana Bank's PB clients consider to be wealthy?

How one defines "wealthy" varies from person to person and tends to depend on one's own level of wealth. In the United States, the Federal Reserve defines a HNWI as someone with an annual income of
$100,000 plus a net worth in the top 10% of US households. The more general definition, however, includes anyone with financial assets of $1 million or more. In the case of the Hana PB Survey, 48% of respondents said that one should have over 10 billion in total assets to be considered wealthy, whereas 21% said 5-7 billion, and 16% said 3-5 billion. In other words, around 80% of respondents believe that one should have total assets of 5 billion or more to be considered part of Korea's wealthy class.
Despite the limited size of the sample, most
of the results appear to be roughly in line with other surveys. Thus, they can provide helpful insights into the general attitudes of Korea's HNWIs toward their wealth and investing.
[Figure 2] Total Assets of Survey Respondents by Level of Financial Assets

\20bn or above \10-20bn \8-10bn \6-8bn \4-6bn \2-4bn \2bn or below 67.6 39.9 155.0 139.4 114.3 288.9 (5%) (1%) (4%) (13%) (37%) (38%) (Unit: \bn) (Percent of respondents in parentheses) 744.4 (2%)
Average: \93.6 billion
Feature
What kinds of people responded to the Hana PB Survey?

When asked about their annual income, 14% said they earn 500 million or more, 47% said 100-300 million, 23% said
living in one of these three districts or Yongsan-gu the centrally located area along northern bank of the Han River has been rising over the past decade, whereas the number living in the traditionally wealthy areas of Seongbuk-dong, Hannam-dong and Pyongchang-dong has been in relative decline; this is particularly true for those with total assets of 5 billion or more, 48% of whom reside in one of the main Kangnam districts. Moreover, of those respondents living in one the main three Kangnam districts, the majority were over 60 years old, suggesting a general aging trend in Korea's wealthy class.
300-500 million, and 15% said less than 100 million. With respect to sources of income, 38% said their main source of income was their own business, 29% said rental income, 19% said financial investments, and 14% said employment income. The results also showed that many HNWIs are business owners and very active in purchasing and leasing out retail space or other forms of real estate.
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In terms of educational achievement, 94% of respondents have a bachelor's degree, whereas 24% have a master's or Ph.D. Their most common occupations are company CEO (14.8%), self-employed businessperson
In terms of area of residence, 42% of respondents said they live in one of the main three districts of Kangnam (Kangnam-gu, Seocho-gu and Songpa-gu). The results also showed that the number of emerging-HNWIs
(13.5%), and professional (12.1%), followed
[Figure 3] Annual Incomes of Respondents

47%
[Figure 4] Sources of Income of Respondents
23% 15% 7% 7%
R e ntal Incom e 29%
Em ploym e nt Incom e 14%
Financial Incom e 19%
Busine ss Incom e 38%
Be low \ 0 .1 bn
\ 0 .1 0 .3 bn
\ 0 .3 0 .5 bn
\ 0 .5 -1 bn \ 1 bn or Above
by retired persons, company executives, company employees and those who live off their real estate assets. Housewives accounted for the highest percentage (31.3%) of re-
to the tendency for the wealthy to inherit a large portion of their wealth.
How large is Korea's HNWI population?

According to a variety of sources, Korea's HNWI population, defined as those with financial assets of 1 billion or more, was 148,000 in 2011, and is expected to grow to 159,000 in 2012. It is estimated that they held 429 trillion (around 19% of total household financial assets in Korea) in 2011, and it is expected that this will grow by 3.6% to 445 trillion in 2012, equivalent to 2.8 billion per person. Of the HNWI population's 429 trillion in financial assets, about 237 trillion (55%) is held mainly in bank deposits and 139 trillion (32%) in securities, mostly equities. And given that the economic slowdown of 2011 is expected to continue into 2012, it is
spondents; this is most likely because housewives tend to be responsible for handling household finances and are therefore most likely to respond to this type of survey. One notable survey finding was that respondents' ratio of assets to annual income was very different from those of the average Korean household. The average total assets of respondents was 9.4 billion, whereas their average income was in the 100-300
million range. This is in stark contrast with the average Korean household, whose ratio of total assets to annual income (40.12 million) is only around 7.4. This sort of gap is evident in Japan as well, where the same ratio for HNWIs is over 50. In both countries, the gap can most likely be attributed
[Figure 5] Korea's HNWI Population

(Unit: 1 0 ,0 0 0 persons) 1 4 .8 1 3 .5 1 1 .6 9 .8 8 .2 7 .0 8 .6 1 5 .9
[Figure 6] Financial Assets of Korean HNWIs

(U nit: \ tn) 415 369 328 269 292 314 429 445
2005
2006
2007
2008
2009
2010
2 0 1 1 2 0 1 2 (E)
2005
2006
2007
2008
2009
2010
2 0 1 1 2 0 1 2 (E)
Source: BOK, Statistics Korea
Feature
likely that their preference for safe assets will increase, which should lead to further inflows into banks. In general, the wealth of HNWIs is managed by a variety of financial institutions, including banks, securities firms and insurance companies. Of those surveyed, 43% said they receive PB or WM services from all three types of financial services companies. 28% said they only receive such services from a bank, 14% said a bank and a securities firm, and 11% said a bank and an insurance company. In other words, most HNWIs prefer to manage their money through banks, presumably because of the relative safety that they provide. Respondents were also asked how many of each type of financial firm they patronize. In the case of banks, 27% said they patronize one bank, 39% said two banks, and 24%
[Figure 7] Types of Financial Firms Utilized by Respondents for WM Services
Bank+Broke r+Insurance Bank/s Bank+Broker Bank+Insurance Broke r Broke r+Insurance Insurance 2% 2% 1% 14% 11% 43% 28%
said three, showing a general tendency to diversify banking relationships. Of those who are clients of securities firms, 78% said they patronize only one firm, whereas 19% said they patronize two. In the case of insurance firms, 41% said they patronize only one, whereas 31% said two. Thus, it can be seen that HNWIs are more likely to diversify their relationships with banks than with securities or insurance firms. In terms of assets, respondents said they put 71% of their assets in banks, versus 17% in securities firms, 9% in insurance companies, and 3% in investment advisors. The fact that the survey's respondents keep most of their financial assets in banks is further evidence that Korea's wealthy are interested in relatively safe investments.
[Figure 8] Share of Wealth Management Market by Type of Financial Firm

Insurance 9%
Investm ent Ad viso r 3%
Broke r 17% Bank 7 2 %
What types of assets do HNWIs like?

Survey respondents said they have 48% of their assets in real estate and 52% in financial assets, including 28% in deposits, 16% in investment funds, and 8% in
Indeed, when asked about which asset class they would like to invest in over the next year, 47% said they expect to increase their allocation to bank deposits, 32% said equities (either directly or through investment funds), and 21% said real estate. Those with total assets of 5 billion or more were more likely than those with less than 5 billion to say they intend to increase their real estate holdings; this seemingly confirms the general perception that the wealthiest individuals are more likely to invest in real estate than those who are more modestly wealthy. As for how respondents attained their wealth, 46% said it was through ownership of a business, 21% said it was from real estate investments, 21% said gifts/inheritance, and 9% said employment income. Of course, it should be noted that some of those who said they received their wealth from a busi-
equities. In other words, they tend to favor real estate the most, followed by deposits. In addition, the results showed that the higher a respondent's total assets, the more she is likely to invest in real estate. Those with total assets above 5 billion had 46% in financial assets, whereas those with assets below 5 billion had 59% in financial assets. For those who invest in equities, there was a
tendency to prefer indirect investing to direct investing. Overall, it appears that the crisis in Europe and other global uncertainties have made HNWIs more risk-averse and thus more likely to veer towards safer
investments.
[Figure
9]
Allocation
of
Assets
Held
by
[Figure
10]
Where
Respondents
Intend
to
Respondents by Wealth Level

28% 16% 8% 24% 14% 8% 18% 9% 48% 54% Inv. Funds
Increase Their Allocations This Year

Deposits 47% 48 % 4 7% 2 1% 23% 1 8% All Respondents Equities 17 % 19% 14% 15% 10% 21 % Total Assets \ 5 bn or Above Total Assets Below \ 5 bn
33%
Deposits
Real Estate Equities Real Estate
41%
All Respondents
Total Assets \ 5 bn or Above
Total Assets Below \ 5 bn
Inv. Funds
Feature
ness received it as a gift or inheritance. In fact, about 21% of respondents said they received an ownership stake in a business as a gift or inheritance, but then grew their assets through management of the business. It
portion of deposits. Whether or not this change in allocations is simply the result of changes in asset prices is unclear, but even if that is the case, respondents have not actively readjusted their portfolios to pre-crisis allocations. Upon closer look at specific asset classes, we can see that investor preferences are highest for deposits, domestic investment
should also be noted that those with total assets above 5 billion were more likely to have built their wealth through real estate investments or gifts/inheritance than those with less than 5 billion.
funds and domestic equities, but lowest for overseas equities, overseas investment funds, and derivative products. This shows that Korea's wealthy have become more wary of high-risk and overseas assets, especially in light of ongoing uncertainties in global financial markets, and are more confident in the relative strength of Korea's domestic market. When asked about 2011 returns on their investment portfolios, 51% said they achieved positive returns for the year; 46% said
[Figure 12] Portfolio Return Expectations of Respondents for the Coming Year
2 0 % or Above 1 5 -2 0 %
What are the investment preferences of HNWIs?

Upon examination of respondents' portfolio allocations, it is evident that Korean HNWIs have become more risk averse since 2008. Between 2008 and 2011, for instance, there was a clear decline in the proportion of real estate assets and investment funds most likely the result of falling asset prices. In contrast, there was an increase in the pro[Figure 11] Investment Preferences of
Respondents by Wealth Level and Asset Type

9% 9% 26% 15% 22% 14% All 4% 8% 9% 26% 16% 20% 15% 3% 6% 10% 8% 25%
D ep o sits D erivatives Annuity Insuranc e
3%
6%
13% 23% 13%
Total Asse ts Total Asse ts \ 5 bn or Be low \ 5 bn Above
Fixed Inc o m e Overseas Fund s D o m estic Fund s Overseas E q uities D o m estic E q uities
1 0 -1 5 %
23%
5 -1 0 %
54%
0 -5 %
14%
Note: Reflects top 3 allocations of each respondent Source: Hana PB Survey 2011 Source: Hana PB Survey 2011
they had returns of 10% or less, whereas 30% said they had losses of 10% or greater. Considering such tepid returns, it should not come as a surprise that they had generally lowered their return expectations for 2012. In fact, a slight majority of respondents said they expect to achieve returns of 5-10% in 2012. Indeed, such caution appears to be in line with their increased allocations to
When asked what type of real estate they owned, most respondents said that the largest proportion of their investments was their primary residence; this was followed by income-producing real estate. When asked what types of real estate they intended to invest in during the coming year, 63.5% said income-producing real estate such as office buildings, retail buildings or officetels, with overwhelming preference for office buildings or retail buildings, given they provide a better opportunity for capital gains than
low-yielding bank deposits, perhaps reflecting their relatively conservative expectations in light of continued risks out of Europe and increased chances of a global economic slowdown. It should be noted that these results are in contrast with those of the Hana
officetels. Of survey respondents, 53.4% hold real estate in the Kangnam area. Indeed, almost half of those respondents who expressed their intention to invest in real estate expressed a preference for the Kangnam area. This shows that, despite general expectations that a sluggish economy and strengthened measures to counter household debt will
PB Survey conducted right after the collapse of Lehman Brothers in 2008, in which the vast majority of respondents expected
one-year returns of over 10%, with 60% expecting 10-15%, and 18% expecting 15-20%.
[Figure 13] Real Estate Investment Preferences of Respondents

Overseas Real Estate 1 .1 % Land 1 3 .9 % Apartment (Residence) 1 1 .2 % Apartment (Investment) 1 0 .7 % Building/ Retail Space 4 7 .4 % Officetel 16%
[Figure 14] Areas Where Respondents Intend to Invest in Real Estate

Seoul (Kangnam) Seoul (Kangbuk) Seoul Metro Area 6 Metropolitan Cities Other Regions 6 .1 % 2 1 .0 % 4 8 .7 %
1 9 .6 %
4 .6 %
Feature
have a slowing effect on the overall real estate market, their belief in the resiliency of the Kangnam housing market has not waned.
ownership and management rights, showing that many wealthy business owners want to keep their business in the family. Of those who said they plan to transfer their assets to their children, 57% expressed concern about their children's ability to properly manage their gifts/inheritance, and this concern was even stronger for the wealthiest respondents. Another 31.6% of respondents said they are worried that giving gifts/inheritance to their children could cause them to lose their desire to work. Somewhat surprisingly, 5.2% of respondents said they did not plan to leave an inheritance to their family members, but rather to donate their wealth to charity or a social cause.
Attitudes towards gifts and inheritance

As 48.4% of survey respondents were 60 years or older, it should not be surprising that they are interested in gifts/inheritance issues. An overwhelming percentage, 93.1%, said they plan on passing their assets to their children, while 9.9% and 2.8% said they would give their assets to their spouses and grandchildren, respectively. As for the types of assets they intend to transfer, 57% said real estate, 37% said cash or deposits, and 12.6% said securities. In general, those over 60 are more likely to transfer real estate assets. Meanwhile, in the case of business owners, a large proportion responded that they plan to transfer their
[Figure 15] Main Concerns of Respondents
Conclusion
As can be seen from the results of the survey, the typical Korean HNWI tends to
[Figure 16] To Whom Respondents Intend to Transfer Their Wealth
Regarding Gifts/Inheritance
Concerns About Ability to Manage W ealth Concerned Children W ill Lose W ill to W ork Fear Children W ill Ignore P arents Concern About Others' Opinions Other 4 .1 % 3 1 .6 % 5 7 .0 %
G ive Equally to Each Child G ive to Child W ho Takes Care of P arents G ive to Child W ho Is Kindest to P arents G ive More to Sons
8 4 .9 %
6 .2 %
4 .3 %
2 .4 %
3 .5 %
8 .1 %
G ive Mainly to Eldest Child
1 .9 %
possess certain traits. First, they tend to rely on banks more than other financial institutions to take care of their wealth management needs. Second, they tend to prefer investing in real estate over financial assets. In particular, they tend to prefer in-
come-producing real estate such as office buildings or retail space over officetels an indication that they seek capital gains in addition to rental income. Third, Korea's wealthy have become more risk-averse since the financial crisis, and this can be seen in their allocations to various asset classes as well as their preferences within a risky asset class such as equities.
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Korea's wealthy class will continue to grow at a steady pace, and for those financial firms that are leaders in providing wealth management services to such clients, the rewards should be plentiful. Of course, capturing this class of customers will not be easy, but will require constant effort to understand the needs of wealthy individuals while delivering tailored services in such a way that can earn their trust and loyalty.
Issue
How Much a Threat Is Korea's Household Debt?

As Korea's household debt continues to rise, so too has the intensity of the debate surrounding the severity of the problem. Regardless of one's views, there should be no question that it warrants serious attention, especially since excessive household debt has shown its potential to grow unattended, eventually causing serious shocks to the financial system and economy. As the problem is complex, this article seeks to provide a brief overview while focusing in on those areas that are easily unnoticed yet that harbor latent risks, such as loans to low-credit households and self-employed individuals, as well as mortgages that are excessive in relation to the incomes or repayment abilities of borrowers.
Wanjoong Kim,
Fellow
Warren Park,
Senior Researcher
Despite attempts at regulation, Korea's household debt problem continues to balloon

Korean household debt stood at 1,103 trillion as of the end of 2011.1) Though last year's measures to curb household lending by the banking sector succeeded in slowing the rate of growth somewhat, the result has been a shift in demand to the non-banking sector (such as savings banks and credit cooperatives), where household lending has surged as the quality of new loans has declined. To deal with this unintended effect, the government has been discussing plans to restrain household lending by non-bank financial institutions. Such an approach creates
another set of problems, however, particularly since much of the recent growth in household debt has gone to people with low credit ratings in the form of unsecured loans. Given that they typically do not qualify for bank loans, restricting lending by the
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non-bank sector would leave them without viable sources of credit, thereby making it harder for them to make ends meet, and hence pushing them further toward delinquency, default or other personal hardship. As this example shows, papering over the household debt problem in one sector can cause it to pop up in another. Because household debt has grown into a complex and multi-faceted problem, however, devising solutions will not be easy. Thus, it is crucial
1) Throughout this article, the term "household debt" refers to "personal financial debt," as defined by the Bank of Korea, and which includes pure household debt, debt held by self-employed individuals, and debt held by non-profit organizations.
that the government and the financial sector acquire a better understanding of this problem so that they can devise appropriate measures that move beyond short-term remedies and attempt to resolve the problem in a comprehensive manner that encourages
mand for residential mortgages spurred largely by ever-rising housing prices. From 2002 to 2011, Korea's household debt grew by around 100%, much faster than nominal GDP, which grew by only 70%. The result has been a rapid and pronounced increase in the ratio of household debt to annual income. As of the end of 2010, for example, the ratio of household debt to disposable income stood at 158% higher than most major economies.
gradual, rather than abrupt, deleveraging in the household sector.
Why has Korea's household debt grown so much and so quickly?

The ongoing and rapid growth in Korea's household debt can be attributed to a variety of factors, including the sharp increase in
Policy measures have only delayed the problem; a more fundamental solution is needed
Since the global financial crisis, many major economies have experienced some degree of deleveraging, with household debt either slowing or outright declining. Korea's household sector, however, has not experienced such a deleveraging. This is largely
12
self-employed people a trend that finds its origins in the wave of layoffs stemming from the Asian financial crisis; intense competition among domestic financial firms to expand their lending; the low interest rate environment that has been in place since the early part of last decade; and growing de-
[Figure 1] Household Debt Outstanding and as a Percentage of Disposable Income

2002 Household Debt (\tn) (Growth Rate, %) Nominal GDP HH Debt/Nom. GDP HH Debt/DI 720.5 74.4 1.31 535.8 2003 561.8 4.8 767.1 73.2 1.27 2004 586.1 4.3 826.9 70.9 1.23 2005 647.1 10.4 865.2 74.8 1.29 2006 717.2 10.8 908.7 78.9 1.38 2007 795.3 10.9 975.0 81.6 1.46 2008 868.1 9.1 1,026.5 84.6 1.50 2009 930.6 7.2 1,065.0 87.4 1.55 2010 1,011.0 8.6 1,172.8 86.2 1.58 2011 1,103.5 9.1 -
Note: HH (Household) Debt refers to the "Personal Financial Debt" category of BOK; DI = Disposable Income Source: Bank of Korea (BOK), Hana Institute of Finance
Issue
due to the constant efforts of the government to stabilize housing prices by relaxing rules on mortgage loans, which account for a majority of household debt; easing regulations on housing construction; or providing tax incentives for homebuyers. For its part, the financial sector has followed the government's lead in prolonging the household debt problem. In the wake of the global financial crisis, for example, Korea's lenders extended the interest-only grace periods and maturity schedules on most mortgage debt, giving borrowers more breathing room but doing nothing to induce a gradual
Korean household debt's potential stress points lie in three main areas
To better understand where the greatest risks in Korea's household debt problem lie, it can be helpful to focus on three sub-sectors: (1) loans to low-credit households, (2) loans to the self-employed, and (3) structural weaknesses mortgages. As mentioned above, non-bank loans to households with low credit ratings have been surging recently a problem because they carry very high rates of interest.2) Notably, outstanding loans to low-income households (annual income of 20 million or less) account for only around 12% of household debt outstanding, but they accounted for 37% of the growth in household loans from the beginning of 2010 through June 2011. inherent in Korea's home
deleveraging. So while such actions by the government and financial sector have prevented a disorderly deleveraging thus far, they have also caused the household debt problem to grow larger and potentially more difficult to manage in the future.
[Figure 2] Growth in Household Lending by Non-Bank Institutions
40 (%) G rowth in Household Lending (1/1 /2 01 0 - 6/30 /20 11 ) 23 .5 20 8 .5 1 7.9 2 1.1 2 1.7 33 .7
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[Figure 3] Comparison of Rates on Bank and Non-Bank Unsecured Loans by Credit Rating
35 30 25 20 15 10 5 1 ~4 Avg. = 1 1 % 1 2 3 4 5 ~6 Avg = 1 5 % 5 6 7 7 ~1 0 Avg = 1 7 % 8 9 Lower 10 (%) Banks N on-Banks
30
10
0 Banks N onBanks Comm. Mutual Finance Savings Credit Credit Co's Banks Coops
0 Higher Credit Rating
Source: BOK
Source: BOK
2) Assuming the same credit rating, the average rate in the banking sector on unsecured loans is 9.8%, whereas it is 24.8% in the non-banking sector a difference of around 2.5 times. The spread widens even more for individuals with lower credit ratings.
Considering that the majority of low-credit households are also low-income, their payment burdens could become unsustainable, leading to rising delinquencies or losses for the non-bank sector. The growth in loans to Korea's self-employed also poses potential risks. To illustrate, Korea has an unusually large self-employed population 31.3% of the labor force versus an average of 15.8% in OECD countries and the sector accounts for a large portion of the recent surge in household debt. This can be a problem because stagnant domestic demand has forced many
Mortgages remain the elephant in the room

Of course, the greatest sources of vulnerability in Korea's household debt dwell within the residential mortgage market. Given that the surge in housing prices that began in the early 2000s has been correlated with the rapid growth in home mortgage, it is likely that the housing market will serve as a key barometer in the direction of household debt going forward. The main problem with Korea's mortgages lies in their structure, as they have tended to be mostly variable rate and bullet-type, which leaves borrowers particularly vulnerable to rising interest rates or the maturity of principal. Although recent efforts have lowered the percentage of total mortgages that are bullet-type, they still comprise 39% of outstanding mortgages. For the rest
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of them to borrow money for working capital purposes, even though they tend to have more debt per financial assets or disposable income than regular workers. Such conditions may make it more difficult for them to make debt payments in the event of economic or financial distress.
[Figure 4] Average Annual Growth Rate in Disposable Income and Sources of Income
18 15 12 9 6 3 0 1 9 9 0 -1 9 9 9 2 0 0 0 -2 0 0 9 5 .7 4 .2 1 .3 1 1 .8 1 2 1 0 .9 (%) Disposable Income 1 6 .3 Employment Income Inve stment Income Self-Employment Income
[Figure
5]
Comparison
of
Debt
Held
By
Self-Employed and Employed Households

Self-Employed Households Share of Households that Hold Debt Average Debt 74.2% Employed Households 70.6%
\113.95mn
\71.94mn
7 .3
Debt as Percentage of Financial Assets Debt as Percentage of Total Assets Debt as Percentage of Disposable Income 1.33x 0.83x
0.23x
0.22x
2.57x
1.67x
Issue
of mortgages that are amortized, 84% are still in their grace period and thus require interest payments only. Once borrowers are required to make principal payments, however, the structural weaknesses of Korea's mortgage market will become more evident. According to the most recent Survey of Household Finances, 31% of households that hold bullet-type mortgages say they will be unable to repay the principal upon maturity, while 23% say they will need to sell their home in order to pay off their mortgage. Thus, if the maturities are not extended or underlying homes cannot be readily sold, there could be a rise in mortgage delinquencies or defaults.
Korea's mortgages are closely tied with a variety of potential risks

Although it had been assumed by many that high-income households would be immune to household debt issues, there is evidence to suggest that a portion of them may be vulnerable to maturing bullet-type structures or because they borrowed excessively in the past for speculative purposes. In particular, recently released data show that, in the years leading up to the global financial crisis, the higher the price of the home, the more these speculative borrowers took out in mortgages relative to income. The data also show that debt-to-income ratios increased as the prices of underlying homes increased, but fell after DTI regulations were introduced in 2006. This suggests that these regulations were helpful in stemming a fair amount of speculative demand.
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[Figure 6] Loan Amount as Share of Income and Share of Overborrowers

60 50 40 30 20 10 0 \300mn or Below \300600mn \600900mn Above \900mn 0 189 17.1 100 (%) Percentage of Overborrowers (L) Loan Amount/Income (R) 285 255 27.4 38.5 (%) 400
[Figure 7] Average Loan Amounts Before and After DTI Regulations by Amount of Collateral
350 300 (\ mn) Afte r DTI Re gulations Be fore DTI Re gulations 1 8 6 .7 1 1 7 .4 1 0 2 .2 6 7 .8 5 3 .6 1 3 6 .6
360
2 9 4 .9
48.5 300
250 200
2 0 8 .7
200
150 100 50 0 3 0 0 mn or Be low
\3006 0 0 mn
\6009 0 0 mn
Above 9 0 0 mn
Source: Kis-value, Hana Institute of Finance
There is also the issue of the sizable portion of homebuyers who combined mortgages with jeonse funds (lump-sum deposits in lieu of monthly payments) received from
the housing market and improve conditions for related industries, but the effects are likely to be short-lived and will do no more than kick the problem down the road again. Instead of makeshift measures, the government will need to collaborate with financial institutions in devising a more comprehensive, longer-term approach based on a variety of measures. For instance, they will need to find better ways of shifting mortgage borrowers from variable-rate loans to fixed-rate loans. They also need to induce more borrowers to begin paying down their mortgage principal, while at the same time making it more difficult for borrowers to refinance into mortgages with interest-only
long-term renters to make their purchases. Although the official LTVs on such mortgages appears to be relatively low, if the two sources of funds are combined, it is estimated that such LTVs would exceed 80%. Thus, there could be more risk in such structures than is evident in official LTV ratios. On a somewhat longer-term basis, the aging of Korea's population could be another
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latent risk. Retired households in Korea have over 90% of their assets tied up in real estate, so many retired households do not have adequate financial assets for retirement.
grace periods. They also need to find ways of bolstering housing transactions and expanding the use of reverse mortgages for the elderly. Finally, financial institutions will
Herein lies a potential vulnerability, as this lack of funds for retirement expenses could force a portion of retirees to sell their homes in the event of a significant drop in housing prices.
need to strengthen their own risk management and work to slow the surge in household debt, with greater emphasis on
long-term profits and sustainability.
Conclusion and Recommendations

Recently, ongoing stagnation in the housing market, particularly the Seoul Metro Area, has stirred some politicians to make the case for looser DTI regulations to stimulate the housing market. As we have seen before, however, such measures may support
Although none of these measures alone will solve the household debt problem, a combination of them, if well designed and executed, could go a long way in ensuring a steady reduction in household debt. The sooner such bold measures are taken, the better.
Issue
Korea's Real Estate Project Diagnosis and Remedies
Finance
Market:
Since 2010, Korea's financial sector, especially the banking industry, has stepped up its efforts to manage troubled real estate PF loans. Rather than eliminating the risks, however, the unintended result has been the gradual transfer of such risks away from the financial sector, but into the construction industry. Thus, to get to the root of the problem and ensure that the gradual elimination of PF-related risk in the financial sector results in greater liquidity for constructions firms, it would be helpful to expand the use of alternative methods such as public-private partnerships. There is also a need to diversify methods of financing real estate development projects so that participants share associated risks more evenly.
Jeungrak Sohn,
Senior Researcher
As housing remains mired in sluggishness, risks from deteriorating real estate PF loans are cause for
concern
In Korea's real estate development market, the main source of funding for land and
construction costs has been project finance (PF) loans, which are granted by financial institutions to construction companies based on their credit standing. Since most of these projects are in the housing sector, their profitability and stability tends to depend largely on pre-sales of housing units.
17
[Figure 1] Unsold Housing Units and Home Prices by Region

25 20 15 10 5 0 -5 2007 2008 2009 2010 2011 (YoY,%) (1 0 ,0 0 0 Units) U nsold Re gional Housing U nits (R) U nsold SMA Housing U nits (R) Home P rice s in Top 5 C itie s (e x -SMA) Home P rice s in SMA 25 20 15 10 5 0 -5
[Figure
2]
Real
Estate
PF
Lending
in
the
Financial Sector
(\ tn) Se c Firms/Asse t Manage rs Insurance (% ) Savings Banks Banks De linque ncy Rate (R)
100 80 60 40 20 0
15 12 9 6 3 0
2008
2009
2010
2 0 1 1 .3
Note: Excludes KAMCO's \7.4tn purchase of PF loans Source: MLTM, Bank of Korea Source: FSS
Since
the
global
financial
crisis,
drop-off in housing demand has resulted in ongoing market weakness in the Seoul Metro Area (SMA), with housing prices decelerating significantly. As the slowdown has continued, potential risks stemming from real estate PF loans have increased significantly. In fact, delinquencies on real estate PF loans have surged from just 4.4% as of end-2008 to 12.3% in March 2011. This surge in delinquencies has occurred despite the fact that, since 2010, the financial sector, particularly the banking industry, has made significant progress in reducing its
Financial institutions have been calling in real estate PF loans, exacerbating the liquidity crisis in the construction industry
As a result of financial institutions calling in existing PF loans and holding back on new loans, the second half of 2009 witnessed the beginning of a surge in construction companies' use of direct financing in the form of securitizations such as ABS or ABCP. Indeed, such securitization outstanding grew from 9.3 trillion at the end of 2008, to 12.5 trillion at the end of 2009, to 16.8 trillion at the end of 2010. Since the beginning of 2011, however, there has been a clear decline in the issuance of real estate-related ABS and ABCP, leaving construction companies with few options in accessing much-needed liquidity.
18
exposure to real estate PF loans, as part of its efforts to strengthen risk management and enhance asset quality. As a result, the outstanding amount of real estate PF loans from the financial sector has decreased from 83 trillion as of the end of 2008 to 59 trillion at the end of March 2011.
[Figure 3] Real Estate PF Securitization: Amount Outstanding and New Issuance
35 30 25 20 15 10 5 0 2008 2009 2010 2 0 1 1 .3 2 0 0 9 .1 H 0 9 .2 H 1 0 .1 H 1 0 .2 H 1 1 .1 H 20 0 (\ tn) ABCP Outstanding ABS Outstanding ABCP Issuance ABS Issuance
[Figure 4] Housing as a Share of Total Real Estate PF Securitization

10 8 6 4 (\ tn) Re al Estate P F Se curitization Housing Share (R) (% ) 100 80 60 40
Source: FSS, Korea Investors Service
Source: NICE
Issue
Since a large share of real estate securitization is related to housing, and the housing sector remains sluggish, there are growing concerns about whether such bonds will be able to be rolled over. Since 2009, 25 of the largest 100 domestic construction firms have applied for workouts or court receivership, demonstrating how deteriorating liquidity
could still deteriorate further. To illustrate, outstanding PF-related contingent liabilities of construction companies connected to existing projects alone amount to around 19.5 trillion in the Seoul Metro Area and 6.8 trillion in other regions. Because of the possibility of further asset deterioration, it is not easy for the private sector to provide additional liquidity. Thus, the publicly-funded Korea Asset Management Corporation (KAMCO) and the United Asset Management Company (UAMCO) have been purchasing non-performing real estate PF bonds with the dual goal of enhancing asset quality in the financial sector and providing liquidity to the construction industry. Unfortunately, most of the purchases have been from the financial sector, and the scale of buying has been limited, with KAMCO
conditions have caused construction company insolvencies to increase, thereby magnifying potential risks.
Bad-debt disposal capabilities must be strengthened to enhance liquidity in the construction industry
The construction industry has been taking measures to improve liquidity conditions; for example, by selling assets at 10-30% below initial asking prices. But liquidity conditions
19
[Figure 5] The RTC's Asset Liquidation Method

Asset Type Residential
Commercial/ Multi-Unit Housing
[Figure
6]
Liquidation
Book Value
Methods
Appraised Value
for
Land
and
Development Project Assets

Category
NP Series Land Funds Actual Collections Recovery Rate
REO3)
Non-Investment Grade Securities
537
119
145
122%
Income Producing Assets
Securitization
Asset Sales Securitization Partnerships Asset Sales Sales to Issuer Asset Sales Asset Partnerships Exchanges/ Auctions
1.
Partnership
2,218
640
592
93%
Bulk Sales
1,057
306
279
91%
NonIncome Producing Assets
Partnerships
Asset Sales Partnerships
Asset Sales
Auctions
Sealed Bidding
259
163
122
75%
407
NA
122
NA
Note: Asset sales include individual loan sales, bulk sales, auctions and sealed bidding Source: Hyuna Kim, Sangyoung Lee (2011) Note: Unit = $mn Source: FDIC (1998), "Managing the Crisis," pp. 450~451
3) REO ("Real Estate Owned") refers to real estate that has become a possession of the lender after a borrower has defaulted.
and UAMCO purchasing a total of 7.4 trillion and 1.2 trillion worth a relatively small portion of total PF debt. It would therefore be helpful if these public asset management companies acquired more
stitutional developers.
investors
and
real
estate
In all, the RTC established 72 separate partnerships and disposed of $21.4 billion in non-performing assets, and the partnerships were particularly useful in disposing of
non-performing debt from the financial sector and promoted the sale of such assets in the market, thereby enabling the financial sector to provide greater liquidity support to the construction industry.
non-income-producing assets that are difficult to price, such as land and development projects. Through the use of a variety of liquidation methods and the expanded investment from the private sector, the RTC was able to dispose of the assets of insolvent thrifts on a large scale in a relatively effective manner. In fact, the RTC's recovery rate on land and development assets was around 75-122% of their appraised value.4)
The experience of the RTC in the US can provide a useful model for the resolution of bad PF debt
20
In the late 1980s, the Resolution Trust Corporation (RTC) was formed in the United States as a means of taking over the bad debts of insolvent S&L associations and disposing of them. The RTC used a variety of methods for such liquidations, including assets sales, securitization, and public-private partnerships. Of particular note was the
The use of partnerships should be expanded to support construction companies' liquidity needs
and
growing amounts of distressed debt

In Korea, KAMCO has plans to diversify the disposition methods of distressed PF sites through the use of partnerships with financial institutions, construction companies and real estate developers, but the scale of such efforts remains very minor. Of the 338 PF sites that it has purchased from savings banks, only ten have been handled through a partnership format.
RTC's use of the partnership format for the disposal of the thrifts' bad debts a method which the RTC pioneered. Using this method, the RTC established a fund with private investors, purchased distressed assets, and allocated the profits from their disposal among investors. Private investors involved in the partnerships included financial institutions, in-
4) In valuing non-income-producing assets, the RTC applied Derived Investment Value (DIV), subtracted operating costs from the value, then applied a 12-25% discount in determining the price.
Issue
The benefits of a public-private partnership format are twofold: First, given that the market remains downtrodden, it is difficult for the private sector to dispose of distressed assets alone. Second, there is a limit in the amount of public funds available. Thus, in order to provide more liquidity to construction companies while strengthening the level of preparedness against a potential increase in distressed PF loans, the private sector will need to take on an expanded role through efforts such as public-private
specialized
in
real
estate
development.
However, because the real estate market remains sluggish, and there are no wide-reaching mechanisms for diversifying or alleviating the risks of projects, the search for a clear alternative continues.
Developing new business models and diversifying financing methods could help reduce risks
To cope with the growing uncertainty and volatility in the real estate market, there is a need to develop new business models that can help ensure stable cash flows throughout
partnerships.
The industry needs to develop new structures to replace the PF method of financing real estate development
Since the global financial crisis, the demand for real estate has declined and potential project participants have become more risk-averse. Considering that project financing relies heavily on pre-sales of housing units and the credit standing of construction companies, the result has been a slowdown in project financing. In response, there have been ongoing efforts to incorporate new structures into development deals, such as having financial institutions play the leading role in development projects, establishing large developers or self-managed development REITs, or establishing investment funds
the development process. Since cash flows come mainly from two sources revenue and financing there is a need to develop business models that seek to diversify sources of revenue as well as financing methods. One way of achieving this is to ensure that investors play a larger role in the development process. Regarding diversification of revenue, developers would be well-served to change their business plans by placing less reliance on housing, which tends to rely on upfront income from pre-sales, and focusing more on developing real estate that generates rental income, such as office buildings, retail space or hotels.
21
As for diversification of financing methods, expanding the use of partnerships between professional investors and landowners would be effective. The use of partnerships can be helpful in enhancing the overall stability of a real estate development project, especially in the initial stages, as it can reduce the required amount of development capital by letting landowners invest their land in exchange for equity in the project. When developing commercial real estate, for which cash flows can be valued, it can be helpful to utilize long-term mortgage
Finally, it would be advisable to establish investment funds that specialize in real estate development, such as certain private equity real estate funds in the US or Europe, as this will help to strengthen investment expertise by enabling more active involvement by a group of professional institutional
investors.
22
loans that pay for construction costs on an incremental basis using operating income as collateral.
[Figure 7] Private Sector Efforts to Diversify the Structure of Development Projects and Project Financing Major Trends Cutting back on real estate PF lending Investing more conservatively (reduce amounts invested in development projects, strengthen ability to conduct feasibility analyses) Disposing of distressed PF loans through, for example, the establishment of "bad banks" Securities firms and insurance companies are reducing lending and strengthening management of existing loans in response to a spike in loan delinquencies Selectively investing equity in and directly managing development projects Participating in the public-private co-development partnership program led by KAMCO Industry restructuring underway, with 25 of the largest 100 construction companies applying for workouts or court receiverships since 2009 After reduction in PF lending by financial institutions, increasingly issuing securitized products such as ABS or ABCP for financing Increasingly obtaining third-party payment guarantees to reduce risks from development projects Working to establish larger development companies with advanced RE development capabilities (asset management plus asset development, etc.) Investigating new business structures such as self-managed development REITs and real estate trusts Some corporations that own real estate are working to establish an RE development company Several overseas-based real estate funds are considering entering Korea's RE development market
Banks
Institutional Investors
Construction Companies
Real Estate Developers
Source: Hana Institute of Finance
Issue
Big Changes Afoot for Korea's Financial Industry

After many years of struggle and failed attempts, Lone Star has finally succeeded in offloading its stake in Korea Exchange Bank (KEB) to Hana Bank, which hopes its acquisition will help it to realize its ambitions of becoming a much larger player in Korean banking. Meanwhile, Nonghyup has split itself into two holding companies: agribusiness and financial services; this should free it up to be more aggressive in expanding its bank and non-bank financial subsidiaries. These seismic shifts, along with the removal of KDB and IBK from the list of public institutions, suggest that Korea's financial services industry is in for major structural changes that will have a significant impact on the competitive dynamics of Korea's financial sector.
Jaeman Song,
Warren Park,
Senior Researcher
Recent events could have a tremendous impact on the competitive landscape of Korea's banks
Banks around the world are facing a host of uncertainties fueled by the ongoing crisis in Europe, sweeping regulatory changes, and other factors. Likewise, Korean banks face their own challenges, namely fierce competition within a crowded domestic banking market, low net interest spreads, and public pressure on banks to lower various fees. In response, they have been actively pursuing means of expanding their revenue sources by diversifying into new lines of business and expanding overseas. Against this backdrop, there has been a series of events recently that could have a considerable impact on the industry. In par-
ticular, Hana Financial Group has acquired Korea Exchange Bank (KEB), giving it
23
greater market share and competitive power, while Nonghyup Agricultural Cooperative
Federation (NACF) has separated its agribusiness operations from its financial businesses, which have been grouped together in a newly formed financial holding company. In other news, Korea Development Bank (KDB) and Industrial Bank of Korea (IBK) have been taken off the list of public institutions, thus granting them more autonomy in their operations. These changes suggest that competition in the banking and
non-banking financial industries is about to heat up; it will be interesting to see how these changes impact the competitive landscape of Korea's financial sector.
The merger of Hana and KEB creates a new giant in the industry
For the past few years, KB, Woori, Shinhan and Hana were considered to be the "Big 4" banks, accounting for 63.8% of domestic deposits. In reality, though, Hana placed a distant fourth, as its total assets were about 80 trillion less than Shinhan (#3); this is why many industry observers referred the Big 4 as the "Big 3 and 1 Medium." Now that Hana has acquired KEB, however, the combined bank has total assets of 258.7 trillion a close second only to KB, which has 260.1 trillion in assets. In
Initial analysis of Hana Financial Group's acquisition of KEB suggests that it was a sound strategic move, since Hana Bank can merge its strengths in retail banking with KEB's strengths in foreign exchange and trade finance, enabling each bank to fill gaps in the other's businesses and thereby generate synergies. In particular, Hana Bank, which has been accelerating its overseas expansion efforts, will try to leverage the overseas branch network of KEB in order to give itself expanded global reach. The combined entity will have 38 branches in 22 countries, by far the most of any Korean bank. In addition, through its acquisition of KEB, Hana Financial Group's overseas assets now top 36 trillion, placing it ahead of other
24
addition, the combined entity now has 1,007 branches, second only to KB's 1,156, thereby enabling it to leverage a much larger retail network. Thus, with four banks now in the true Top 4, it seems inevitable that competition in the industry will heat up.
[Figure 1] Total Assets of Korean Banks
(\tn) 300 260.1 258.7 233.5 200 156.4 102.3 100 220.4
Korean financial groups such as Woori (22 trillion) and Shinhan (19 trillion).
[Figure 2] Domestic and Overseas Branches

1,400 1,200 1,000 800 600 400 200 1,156 1,007 Domestic Overseas 966 932
0 KB Hana Woori Shinhan Hana (+KEB) KEB
11 0 KB
38 Hana + KEB
19 Shinhan
22 Woori
Note: Total Assets are as of end-September 2011. Source: FSS Source: FSS
Issue
In the credit card business, the tie-up between HanaSK Card, which has a weak customer base and does not have its own payment network, and KEB Card, which has its own payment network with over two million merchants, will give the combined entity a market share of around 9%. The combination should generate significant synergies and
will need to develop measures to enhance mutual understanding at the cultural and organizational level. Also, given that the banks have agreed to maintain a "two bank" structure (two separate banks under one financial holding company) for at least five years, Hana Financial Group may need to make some modifications to its matrix organizational structure.
give rise to a stronger competitor to current market leaders Shinhan Card and KB Card. Of course, making the merger a success will require strong organizational planning and management. Though Hana Financial Group has granted KEB the right to maintain its brand and retain the bulk of its personnel, it must still work to integrate the management and cultures of the two organizations a crucial yet formidable task. To move in the right direction, HFG and KEB
The split-up of Nonghyup will create a new financial holding company

Along with Hana's acquisition of KEB, the other main event in the financial industry in the first quarter of 2012 was the separation of the financial and agricultural businesses of Nonghyup (NCAF), which has led to the creation of the NH Financial Group. Historically, Nonghyup has been known pri-
25
[Figure 3] Key Indicators for Major Credit Card Companies in Korea

Total Assets (Avg.) Shinhan Card KB Card Samsung Card Hyundai Card HanaSK + KEB Card Hana SK KEB 21.9 12.8 15.7 9.6 8.0 5.6 2.4 Purch. Vol. \(tn) 95.2 57.7 53.4 52.4 34.5 21.8 12.7 Market Share (%) 22.94 13.90 12.86 12.63 8.29 5.24 3.05 Customer Accounts (mn) 15.43 10.40 10.81 9.30 10.77 7.22 3.55 Merchants (mn)
[Figure 4] Total Assets of Korea's Financial Holding Companies
500
264
(\ tn) 3 7 2 .4 3 6 6 .5 3 6 3 .6
400
212 244 191 249 40 209
3 3 7 .3 240
300 200 100 0 W oori Hana KB Shinhan
NH
Note: Data cover period from 1/1/2011 to 9/30/2011 Source: FSS, CREFIA, Individual company data
Note: Total Assets includes trust accounts Source: FSS, Company Data
marily for its agricultural business. But as the financial side of the company expanded, there were increasing calls for the separation of the two areas of business, with the idea first proposed in 1994. It was not until March 2, 2012, however, that Nonghyup finally split itself and relaunched as two separate holding companies. The financial side of the business, NH Financial Group, has total assets of 240 trillion, ranking it fifth behind the financial groups of Woori, Hana, KB and Shinhan. Before taking on its new form, NACF comprised four businesses: Education &
tural supply and distribution, whereas NH Financial Group will handle financial services through subsidiaries such as NH Bank, NH Life, NH Fire, NH Securities, NH Futures, NH Asset Management and NH Capital. NH Bank has traditionally raised funds in urban areas and used them to provide financing, education and other types of support to farming and agriculture in rural areas, where it is most needed. Through its extensive rural network, it has built holdings of 195 trillion in total assets and 1,172 outlets. If its cooperative banking business, which is technically not part of the banking sector, is combined with its banking operations, Nonghyup's holdings rise to 450 trillion in assets and 5,600 outlets. Thus, it can be considered a powerhouse in Korea's financial industry.
26
Support, and the Agricultural, Livestock and Credit businesses. Under the new system, however, it is composed of two separate holding companies (Agribusiness and
Financial Business), as well as Education & Support and Credit. Under the new structure, NH Agribusiness Group will handle agricul-
[Figure 5] Nonghyup's Structure Before & After the Separation of Its Agricultural & Financial Businesses
Source: Hana Institute of Finance
Issue
One factor that distinguishes Nonghyup from the pack is its strong nationwide network of banking outlets even in rural areas, whereas other major banks have their
ployee assets of 14 billion, deposits of 10.4 billion, and loans of 9.5 billion. Its risk management capabilities are also considered less developed than other banks, and its IT systems have frequently been faulted for provide unstable service. NH Life's main weakness is the size of its salesforce, which it will need to expand in order to increased its sales of highly profitable guarantee-type products. Currently, it only has around 1,500 sales advisors, even less than many medium-sized competitors. Contrast that with Samsung Life, which has 38,000; Daehan Life, which has 25,000; and Kyobo Life, which has 23,000. NH Life will also need to provide its salesforce with ongoing education and training.
branches concentrated mainly in the Seoul Metro Area. Nonghyup's nationwide reach ensures that it has the scale necessary to be a formidable competitor to other top banks. In particular, it could become a legitimate threat to leading banks if it expands its branch network in the Seoul Metro Area. Nonghyup's new structure is also expected to benefit NH Life, whose 33 trillion in assets already puts it in fourth place among life insurers, but whose new identity as part of a financial holding company gives it the ability to utilize the bancassurance channel of Nonghyup's nationwide network of
27
branches. This is expected to change the competitive landscape of the industry. However, if Nonghyup is to follow in the footsteps of a company like Credit Agricole which grew from an agricultural cooperative into a global player, and which is often seen as a role model for Nonghyup's financial ambitions its subsidiaries such as NH Bank and NH Life will need to overcome some important challenges. For example, NH Bank is less productive than other banks, as shown by its per-em-
Removing KDB and IBK from the list of public institutions will give them more autonomy
In other news, the Korea Development Bank (KDB) and the Industrial Bank of Korea (IBK) have been taken off the list of public institutions, a move that should enable them to make more managerial decisions that are independent of government oversight. For example, it grants them more freedom in making personnel decisions. It also gives them more freedom to expand their retail or investment banking operations.
However, removing these banks from the list of public institutions could potentially open another can of problems. Based on their public charters, the two banks have served a public purpose by lending to sectors or projects that commercial banks do not find attractive. IBK, for example, has been a leading lender to SMEs, whereas KDB has played a major role in financing important public infrastructure or other development projects. Now that they have been taken off the public institutions list, however, there is the risk that they could reduce their public role, leaving SMEs and important public initiatives with fewer credit options.
The outlook for Korea's banking industry is fraught with ambitions and
uncertainties
With Hana's acquisition of KEB, the competitive landscape of Korea's banking industry has changed from a Big 3 to a Big 4 structure, whereas NACF's split into agricultural and financial businesses adds another financial holding company to the mix and is thus likely to transform the competitive landscape at the financial holding company level. For KDB and IBK, their removal from the list of public institutions should give them more room to beef up their retail banking operations, which should also raise the level of competition in the sector. As more financial holding companies enter the competitive scene, they will continue to diversify their business lines and expand into new markets. In particular, as bank
28
In order to avoid such a scenario, it would be advisable to allow them to pursue their commercial interests while also providing them with incentives to maintain their important role as public-oriented lenders.
[Figure 6] NH Life's Position in the Industry

160 (\ tn) Total Asse ts (L) 120 Insurance P re miums (R) 15 80 10 40 5 0
Sam sung Dae han Kyobo NH ING M irae
[Figure 7] Change in SME Loans by Bank Type

25 20
(Unit: \tn)
(\ tn)
2006
2007
2008
2009
2010
Commercial Banks Special Banks Policy Banks
30.8
50.6
30.9
7.7
-5.4
14.2
17.4
22.5
13.4
3.0
10.9
11.2
12.6
12.6
5.8
IBK
10.1
9.0
7.6
10.4
5.2
Note: IBK, KDB and Korea Eximbank are policy banks Source: KLIA, NACF Source: FSS
Issue
profitability has stagnated recently, financial groups are likely to continue their march into non-banking financial sectors, while focusing on operational and organizational restructuring to generate greater synergies between their banking arms and non-banking subsidiaries. Moreover, Korea's banks and financial holding companies will continue to push into overseas markets. Even though the ongoing rush to expand into overseas is likely to become more intensified, it is likely to benefit Korea's banks in two major ways: First, because Korea is a small and open economy, it remains vulnerable to external financial shocks. Successful overseas expansion can help Korea's banks to secure more stable sources of foreign currency-denominated
29
funding, thereby providing Korea's financial system with bolstered defenses against global financial stability or external shocks.
Second, because of its small size, Korea's banking market is plagued by lower growth expectations as well as intensified
competition. As such, they will need to continue to seek out new sources of growth in overseas markets.
Korea's Long-Term Solar Prospects Shine Bright

After growing at a steady pace through 2010, the global solar photovoltaic (PV) industry deteriorated sharply in the second half of 2011 owing to a precipitous drop in European demand combined with excess supply. Industry conditions will likely continue to worsen in 2012, forcing the bankruptcy of many weaker companies, but an upturn in US and China demand should allow the industry to recover in 2013. Moreover, technological advancements and the pace of the recovery suggest that solar PV could reach grid parity as early as 2015, paving the way to a high-growth phase. Korean solar PV companies, though laggards in the industry, still have ample opportunity to compete as long as they invest for the long-term.
Hyeyoung Ahn,
Senior Researcher
Market conditions in the solar PV in-
lization of the industry's major players and significant deterioration in business conditions overall. An examination of the solar PV value chain shows that companies furthest downstream took the greatest hit to profitability. For polysilicon and ingot/wafer producers, there have been concerns about potential oversupply stemming from large-scale expansion of facilities, but considering that the undersupply of such high purity materials is expected to continue for a while, related companies should be able to maintain relatively stable profit margins. Contrast this with the next link in the value chain, solar cells and modules, where already severe oversupply conditions have
30
dustry continue to erode

In the latter half of the 2000s, the economics of photovoltaic (PV) power improved as global PV manufacturers scaled up and achieved greater vertical integration, enabling the industry to grow at a blistering annual average pace of 45% in the 2007-2010 period. This led to a sharp increase in facilities investment around 2010, particularly in China. Starting in the second half of 2011, as Europe's woes spilled over into the global economy and credit markets, however, the demand for PV power declined precipitously, causing oversupply conditions to worsen. As a result, prices along the PV value chain plummeted by 40-50% over the previous year, leading to a drop in the capacity uti-
Issue
deteriorated further as the economic slowdown has dented demand. This has thrown supply and demand even more out of balance, causing prices and profitability to drop sharply. Because of such deteriorating conditions in the industry, some of the smaller industry players that cannot compete on price find themselves faced with the prospect of bankruptcy, making a string of insolvencies in the industry virtually inevitable. Naturally, Korean PV-related companies have not been spared from the global economic slowdown and the generally deteriorating conditions in the PV industry, as those most heavily dependent on exports have seen growth diminish rapidly. The PV-related exports of such Korean companies grew at an average annual pace above 100% in
The PV market should begin to recover in the second half of 2013

Based on the fact that government subsidies for solar PV power have been reduced and that European demand is expected to decline by at least 2GW, as well as expectations of slower global growth and limited demand growth from new markets, oversupply and falling prices in the PV industry are likely to continue in 2012. Over the short term, it is likely that plummeting prices stemming from excess supply will cause failures among PV manufacturers unable to compete either on technological prowess or price. Beyond the short-term shock, however, this sort of industry restructuring should help to gradually ease excess supply conditions. Plus, with demand in the US and China expected to increase gradually, the photovoltaic industry could begin to recover in 2013.
31
2008-2010, but such growth is expected to slow to around 20% in 2011-2013.
[Figure 1] Prices Declines Across the Value Chain

2 ($/W) 4Q 2010 1.6 4Q 2011
[Figure
2]
Korea's
Solar
PV
Technological
Sophistication Relative to Advanced Economies

100 80 60 40 20 0 (%) 8 1 .4 8 0 .0 5 9 .7 49
1.2
0.8
0.4
0 P-Si Ingot/Wafer Cell Module
P-Si
Ingo t/W afer
Cell
M o dule
Source: Solar PV Green Forum 2011
Source: The Export-Import Bank of Korea
The US and China will likely play a leading role in the future solar PV
market
Thanks to solid and aggressive backing by their respective governments, the photovoltaic industries in the US and China have been growing at an explosive pace. In China, the government has been active in providing support to its solar-related companies for their R&D and facilities expansion, while also raising ceilings on lending to such companies. It is also planning to launch a feed-in tariff system in July 2012, providing further hope that China's domestic PV
In the United States, the country's vast supply of desert and other low-cost land can enable US-based companies to enter the industry with relatively low initial investment. Moreover, as the cost of installing PV generation facilities has fallen recently, various tax benefits and Renewable Portfolio
Standards provided by the federal and state governments should help to spur growth, fueling an increase in investment and demand in 2012. Given these conditions, the United States' installed PV capacity, which stood at 0.8GW in 2010, is likely to grow by an average annual rate of about 80% until 2015, by which time it should reach 8.8GW. Based on these factors, it appears that the solar PV markets in the US and China could experience explosive growth, leading to a shift in PV leadership from Europe, which was the previous leader, to the US and China. In fact, it is forecast that the com-
32
market will be able to grow at a rapid pace. Considering these types of measures out of China, it is forecast that the PV installed capacity in China will grow from 0.5GW in 2010 to 7.0GW in 2015, an annual growth rate in excess of 70%.
[Figure 3] Trends in Share of Solar PV Production in the US and China Versus Europe
100 80 60 40 20 8.4 0 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 44.0 36.4 (%) 80.0 US+China Europe
Source: Solar&Energy
Issue
bined share of global PV installed capacity in the US and China could grow from 8.4% in 2010 to 36.4% by 2015.
ductions
under
stable
supply-demand
conditions. Based on current PV technologies and the industry's pace of recovery, grid parity could be achieved as early as 2015.
Once grid parity is achieved, the industry should enjoy

explosive
Once solar PV does achieve grid parity, the demand for PV power will likely increase by at least fivefold, so the rapid growth phase for the industry can be expected to begin sometime around 2015.
growth starting around 2015

Owing to the recent sharp fall in the prices of photovoltaic products, the cost of PV power generation is beginning to approach levels indicating grid parity.5) But because the recent price drop is most likely due to oversupply as opposed to technical advances or cost reductions, it is probably temporal in nature. As such, absent government subsidies, PV power is still unable to compete on price with existing grid power. True grid parity within the solar PV industry can only be achieved when price competitiveness is achieved through cost re[Figure 4] Outlook for Solar PV Installed Capacity
50 40 (GW)
As the solar PV industry is still young, Korean firms still have to chance to get into the game
As latecomers to the industry, Korea's solar PV companies still lag behind their rivals in Europe and Japan in terms of technology, and their rivals in China in terms of price. Nevertheless, considering that the long-term growth prospects for the industry are virtually guaranteed, it will be important for
33
41.0 34.0 30 23.0 20 10 2.4 0 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 7.6 16.6 6.3 19.0 28.0
Source: Solar&Energy 5) Grid parity is the point at which the price of generating power using a renewable energy is equal to or less than that of fossil fuels, absent government subsidies.
Korean firms to take a long-term view of the industry and invest accordingly in a selective and strategic manner, rather than basing their investment decisions on cyclical changes or trends. In the case of large firms, rather than trying to achieve vertical integration immediately, they should focus investment first in those areas where they are most competitive; once they have gained a competitive foothold, they can strategically aim for vertical integration. Moreover, the recent deterioration in the industry and its negative impact on the profitability of many US and Chinese so-
Big changes in the structure of the solar PV industry are expected

As downturn in the industry continues, a good number of solar PV companies in Europe, China and the United States will likely fail in 2012. This will open up opportunities for those companies with a long-term strategy to move in and either acquire some of these companies or buy up major stakes in order to achieve vertical integration or secure needed technologies. As long as the industry's long-term prospects remain positive, it is likely that solar PV companies will increase their investment in new technologies and large-scale manufacturing facilities, which will further fuel industry growth. So just because the industry is struggling at the moment does not mean that it is down-and-out. On the contrary, the industry's future looks rather bright.
34
lar PV companies will probably force many of them to go under. Thus, there should be ample opportunity for some of Korea's larger solar PV companies with substantial capital to speed their entry into the market through acquisitions of some of these companies. For medium-size companies with technological prowess, rather than pursuing crystalline solar cells, which requires economies of scale to compete, it would be advisable to carve out a strategic position in the market for thin-film solar cells, where the competition is not yet as severe.
Market Watcher
Interest Rates: Rates to be kept on hold for an extended period

Wanjoong Kim,
Fellow
Even as uncertainty over negotiations on the second Greek aid package caused jitters in global financial markets, the ECB's LTRO program and other quantitative easing by major central banks helped to expand the supply of global liquidity, spurring a rise in the risk-on trade. This was evident in Korea as well, as foreigners increased their allocations to domestic equity markets while selling KTB futures, adding to upward pressure on yields. But even though two rounds of LTRO were effective in easing global financial turbulence, they have done little to expand the provision of credit, as a large portion of the liquidity supplied to banks has ended up as ECB deposits. Thus, the impact of such measures on the real economy has been limited, raising the likelihood that the
economic stagnation in the Eurozone will continue for an extended period. Meanwhile, in China, the risk of a hard-landing seems to have diminished greatly, but given that the National People's Congress (NPC) recently announced that it had lowered its 2012 growth target to 7.5%, it appears that the odds of a global economic slowdown are rising. Given the ongoing Eurozone crisis, global economic slowdown, and heightened geopolitical risks in the Middle East, the Fed has kept policy rates on hold since July 2011, and expanded global liquidity and improving US economic indicators since
35
February have reduced expectations for a lower Fed funds rate. If anything, geopolitical tensions in the Middle East could
[Figure 2] ECB Total Assets & Deposits
3 .2 (\ tn) EC B De posits (R) (\ tn) EC B Total Asse ts (L) 0 .6 0 .9
[Figure 1] Key Interest Rates

4 .5 4 .0 3 .5 (%)
2 .4
1 .6 3 .0 2 .5 2 .0 1 1 .1 3 Yr KTB 91D CD P olicy Rate 1 Yr Bank Bond 1 1 .3 1 1 .5 1 1 .7 1 1 .9 1 1 .1 1 1 2 .1 1 2 .3
2 nd LTRO 1 st LTRO 0 .3
0 .8
0 .0 0 8 .1 0 8 .1 1 0 9 .9 1 0 .7 1 1 .5 1 2 .3
0 .0
Source: FnGuide
Source: Bloomberg
cause oil prices to surge, thereby increasing the need to hike rates. But despite improvement in key economic indicators such as manufacturing in China and the US, the European crisis is likely to be prolonged and the potential for an oil price spike remains, making it more likely that the Korea's policy rate will be kept on hold for a while. In addition, reduced demand for mortgages stemming from slowing housing demand and strengthened management of
exerting upward pressure on market rates. Foreign purchases of Korean bonds, which had been slowing since October 2011, have shown a net increase since mid-February. Because such purchases have been concentrated primarily at the short end of the yield curve and in MSBs, however, their most likely effect will be to limit increases in short-term rates, rather than causing
benchmark or other medium- to long-term rates to fall. Owing to the recent trend of foreigners selling KTB futures, the trading range of benchmark rates has shifted upward, but considering the pent-up demand within the bond markets and the fact that accumulated foreigner-held positions are near historical
household debt should lead to slower growth in household lending, making it less likely that the Monetary Policy Committee (MPC)
36
will hike rates, whereas its emphasis on the importance of inflationary expectations makes further easing unlikely. Meanwhile, in addition to rising equity prices and reduced risk aversion stemming from expanded global liquidity, foreign investors continue to sell KTB futures, thus
[Figure 3] Residential Mortgages & HH Debt
4 (\ tn) Annual Avg. 2 \ 1 .8 2 tn Annual Avg. \ 2 .0 0 tn
highs, such selling is unlikely to have a significant impact on market yields.
[Figure 4] Cumulative Net Purchases of KTB Futures by Foreigners & Yield Trends
9 6 3 3 .3 (1 0 ,0 0 0 Contracts) (Reverse Ax is, %) 2 .7 3 .0 Cumulative N et Purchases of KTB Futures by Foreigners (L) 3 yr KTB Yield (R)
0 Household Loans Reside ntial Mortgages
0 3 .6 -3 -6 -9 1 0 .1 0 3 .9 4 .2 1 1 .1 1 1 .4 1 1 .7 1 1 .1 0 1 2 .1
-2
-4 1 0 .1 Q 1 0 .3 Q 1 1 .1 Q 1 1 .3 Q 1 2 .1 1 2 .2
Source: Bank of Korea
Source: Thomson Reuters Datastream
Market Watcher
Exchange Rate: As uncertainties dissipate, a gradual strengthening of the KRW is expected

Yootag Jung,
As the year opened, the USD/KRW exchange rate was hovering around 1,140-1,160 won, but then fell to the 1,100-1,120 range after S&P's downgrade of the Eurozone in mid-January, which actually helped clear
In particular, the second round of the ECB's highly-anticipated LTRO program was larger than expected (529.5 billion), and like the first round, created enough liquidity to help ease credit market conditions and stabilize Europe's sovereign bond markets, while also easing concerns about the health of the financial sector as short-term funding costs declined. In addition, the voluntary participation rate of private sector creditors in Greece's debt swap was 85.8%. This further helped to mitigate fears about debt deleveraging or a disorderly default in the
some of the uncertainty, as well as the Fed's announcement near-zero that it rates would for an maintain extended
interest
period. The second round of LTRO, the second round of Greek aid, and growing expectations for a US recovery helped to maintain the basic trend, although further downward movement was limited by the ongoing Greek crisis, fears of a global economic slowdown, and rising oil prices. As a result, the USD/KRW exchange rate has been hovering within a 1,110-1,140 won range.
[Figure 1] The KRW Strengthened as a Result of Improved Domestic and External Conditions
1250 1200 1150 1100 1050 1000 1 1 .7 (KRW ) KRW /USD (L) (Index) VIX (R) 50 40 60
37
Eurozone, thereby signalling that any immediate, adverse impacts of the European crisis on global financial markets are beginning to wane.
[Figure
(bp) LTRO 1 100 80 60
2]
Liquidity
Conditions
in
Europe's
Banking Sector Improved

120 (bp) LTRO 2 -1 8 0 -1 5 0 -1 2 0 -9 0 -6 0 -3 0 0 1 1 .9 1 1 .1 1 1 2 .1 1 2 .3
30 40 20 10 1 1 .9 1 1 .1 1 1 2 .1 1 2 .3 20 0 1 1 .7 Euro OIS Spre ad (L) Euro Basis Swap (R)
Source: Bloomberg
Source: Bloomberg
With the strains in Europe beginning to ease, the exchange rate will likely be determined mostly by the direction of the real economy in major economies. In the US, 4Q 2011 GDP was recently revised upward from 2.8% to 3.0% and employment continues to improve, but doubts remain about the sustainability of the recovery. In Europe, the economic downturn is accelerating, with crisis-ridden countries posting two consecutive quarters of negative growth. Even emerging economies appear to be officially slowing. In China, for instance, February production and consumption numbers came in below expectations, and the trade deficit soared to $31.5
Over the short term, the downtrend in the USD/KRW exchange rate is likely to continue, particularly as the crisis in Europe stabilizes on the back of the new Fiscal Stability Treaty, waning Greek concerns, and improved liquidity conditions. The Korean government's clarification of its monetary stance, as well as improvements in the trade surplus, should also strengthen the KRW. However, other factors could exert upward pressure on the exchange rate, including whether European banks raise adequate capital by the June deadline, the determination by ISDA that Greece's debt swap was indeed a credit event, an economic downturn in Europe and emerging economies, and volatile oil prices. Even if such events cause the exchange rate to rise temporarily, however, the general trend should be downward, potentially falling below 1,100 won some time over the next quarter.
38
billion, its highest level in 20 years, fueling fears that the world's second-largest economy could be headed for a severe slowdown. On top of these fears, the standoff in Iran has pushed up oil price volatility, adding fuel to fears of a global economic slowdown.
[Figure 3] China's Exports Slowed While Its Trade Deficit Expanded

60 50 40 30 20 10 0 -1 0 -2 0 -3 0 -4 0 1 1 .1 1 1 .3 1 1 .5 1 1 .7 1 1 .9 1 1 .1 1 1 2 .1 Trade Balance (L) Ex ports (R) Imports (R) (bil.$) (YoY, %) 60 50 40 30 20 10 0 -1 0 -2 0 -3 0 -4 0
[Figure 4] Tensions in Iran Fueled Oil Price Volatility

130 120 110 100 90 80 70 1 1 .1 (USD/Barrel) Dubai W TI N DA Act
1 1 .3
1 1 .5
1 1 .7
1 1 .9
1 1 .1 1
1 2 .1
1 2 .3
Source: Bloomberg
Source: Bloomberg
Market Watcher
Equities: A weak start in 2Q should pave the way to a stronger finish

Yonghyun Cho,
Strategist, Hana Daetoo Securities
Korea's equity market has been in an uptrend since the start of 2012 something of a surprise to many, since the consensus outlook at the end of last year expected the market to suffer a correction and elevated volatility sometime in 1Q, followed by a gradual recovery through the rest of the year. The consensus forecast expected elevated volatility in 1Q based on a number of factors, such as the potential S&P downgrade of the Eurozone in January, as well as the maturity schedule of PIIGS sovereign bonds. These events had limited impact, however, as S&P's downgrade of the Eurozone had apparently already been priced in, while the debt of the PIIGs was rolled over through the
[Figure 1] Net Foreign Purchases of Korean Equities
8 6 4 2 0 -2 -4 -6 -8 09.1 09.7 10.1 10.7 11.1 11.7 12.1 4.3 (\tn) 6.9
ECB's LTRO operations. US economic indicators, which had begun to turn upward last October, continued to improve into the new year. This positive trend combined with global policy support in the form of the ECB's LTRO operations, further quantitative easing by the BOJ, eased reserve requirements by the PBC, as well as hopes for QE3 by the Fed helped the global liquidity situation to improve rapidly, providing a boost to global equity markets. As the global liquidity environment improved, massive foreign capital flows found their way into Korea's equity markets. In January, net inflows were 6.9 trillion, the highest ever recorded over a monthly period,
[Figure 2] Correlation Between Equity and Oil Prices (2008 to Present)
160 140 120 100 80 60 40 20 600 Global Equity Index 800 1000 1200 1400 1600 1800 (Oil Price ,$) Reverse correlation above $120
39
y = 0.0965x - 32.538 R2 = 0.7304
Source: Thomson Reuters, Hana Daetoo Securities Source: KRX, Hana Daetoo Securities Note: Oil price is average of Brent, Dubai and WTI
and foreign capital continued to flow into Korea's markets in February as well. January also saw the KOSPI rise above 2000 for the first time in six months. Any one of the following three main factors could influence the general direction of the equity markets in 2Q. First is the geopolitical risk and oil price volatility stemming from the Iranian nuclear issue. Second is the political risk stemming from Greek's parliamentary elections and France's presidential elections. And third is the direction of the economy and corporate earnings. With regard to the first factor, oil price
a negative influence on ongoing intra-regional efforts to resolve European fiscal woes. As for the third factor, it seems likely that the global economy and corporate earnings will recover slowly in 2Q after bottoming in 1Q, as previously sluggish employment and construction in the US continue to recover, and as China's efforts to reverse previous tightening and stimulate domestic demand help to buffer the slowdown in its economy. Korea's equity market should start off weak in 2Q but regain strength in the latter part. After the strong rise in 1Q, not only is a technical correction warranted, but geopolitical and political risks could also have a negative impact. But as economic momentum and corporate earnings are expected to recover after 1Q, the equity market will also likely be able to get back on the path to recovery following a brief correction.
[Figure 4] Forward EPS Growth & P/E Ratios
40
volatility is likely to continue until tensions in the Strait of Hormuz are resolved. This is likely to have a negative impact not only on already-high inflation but on equity markets as well. As for the second factor, there remains some possibility that the results of key national elections in Europe could have
[Figure 3] S&P500 Index vs. EPS
1600 1400 1200 1000 800 600 400 200 0 2008 2009 2010 2011 2012 $5 $0 $20 $15 $10 (Index) Quarterly EPS (R) S&P500 (L) $30 $25
16 15 14 13 12 11 10 9 8 7 6 0
(P/E) Singapore Canada US Brazil Indonesia Thailand Germany China Korea India Taiwan
France UK
(EPS Growth) 5 10 15 20 25
Source: S&P, Hana Daetoo Securities
Source: Bloomberg, Hana Daetsoo Securities

Hana Insight (Hana Institute of Finance) - Issue#3

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Hana Insight (Hana Institute of Finance) - Issue#3

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Table of Contents

Warren Park, Juneun Kang

How Much a Threat Is Korea's Household Debt?

Wanjoong Kim, Warren Park

Jaeman Song, Warren Park

Interest Rates: Rates to be kept on hold for an extended period

Yonghyun Cho, Hana Daetoo Securities

How Do Korea's HNWIs Manage Their Wealth?

[Figure 1] Whom Survey Respondents Consider "Wealthy" by Level of Wealth

Source: Hana PB Survey 2011

Mar 2012 Hana Insight

Whom do Hana Bank's PB clients consider to be wealthy?

Despite the limited size of the sample, most

[Figure 2] Total Assets of Survey Respondents by Level of Financial Assets

Average: \93.6 billion

Source: Hana PB Survey 2011

What kinds of people responded to the Hana PB Survey?

(13.5%), and professional (12.1%), followed

[Figure 3] Annual Incomes of Respondents

[Figure 4] Sources of Income of Respondents

R e ntal Incom e 29%

Em ploym e nt Incom e 14%

Financial Incom e 19%

Busine ss Incom e 38%

Source: Hana PB Survey 2011

Source: Hana PB Survey 2011

Mar 2012 Hana Insight

How large is Korea's HNWI population?

[Figure 5] Korea's HNWI Population

[Figure 6] Financial Assets of Korean HNWIs

Source: BOK, Statistics Korea

Source: BOK, Statistics Korea

[Figure 8] Share of Wealth Management Market by Type of Financial Firm

Broke r 17% Bank 7 2 %

Source: Hana PB Survey 2011

Source: Hana PB Survey 2011

Mar 2012 Hana Insight

What types of assets do HNWIs like?

Respondents by Wealth Level

Increase Their Allocations This Year

Real Estate Equities Real Estate

Total Assets \ 5 bn or Above

Total Assets Below \ 5 bn

Source: Hana PB Survey 2011

Source: Hana PB Survey 2011

What are the investment preferences of HNWIs?

Respondents by Wealth Level and Asset Type

13% 23% 13%

Total Asse ts Total Asse ts \ 5 bn or Be low \ 5 bn Above

Mar 2012 Hana Insight

[Figure 13] Real Estate Investment Preferences of Respondents

[Figure 14] Areas Where Respondents Intend to Invest in Real Estate

Source: Hana PB Survey 2011

Source: Hana PB Survey 2011

Attitudes towards gifts and inheritance

[Figure 16] To Whom Respondents Intend to Transfer Their Wealth

G ive Mainly to Eldest Child

Source: Hana PB Survey 2011

Source: Hana PB Survey 2011

Mar 2012 Hana Insight

How Much a Threat Is Korea's Household Debt?

Despite attempts at regulation, Korea's household debt problem continues to balloon

Mar 2012 Hana Insight