Past and present state of the banking system, Key financial institutions, main players, regulatory framework and Financial markets

Abstract

In the year 1984, there was a revision of the commercial code of different corporations in Korea after they had failed to solve the financial problems in the country. The management of these corporations allowed for navigation through the legal constraints and market challenges. Due to the presence of this conduct, the management could act freely as compared to the other counterparts within the country. If the economy of Korea could continue to expand, then the status could be deemed appropriate. It was the responsibility of the governments to confront management problems that were concerning accountability. The foreign investors had also placed massive demand for accountability and reforms to see over an enormous growth in the country. Even on the current status, large corporations have a key role within the modern capitalist societies. The corporation influence goes beyond economic significance and extends to the political and cultural arena. Because of this influence, many economists, business owners, and lawyers have been looking at the structural functions and structures of the government within the business corporations. In Korea, the continuous debate of corporate governance has been seen within the formations and foundations of law and to give ambitions for the principals of corporate governance.

 

Keywords: Corporate Governance, Accounting Transparency, Korea, the banking system. Key financial institutions, main players, regulatory framework, Financial markets, Main markets and institutions, Capital market regulatory, reform in Korea, Consolidated capital, markets law.

 

 

 

Introduction

Corporate governance refers to various rules and systems which guides firms and corporations. It involves interest balancing for the companies and stakeholders while at the same time taking care of the customers, government and the members of the society.  Korea has undergone various reforms in the financial market and government operations. The revision of the commercial corporations took place recently, and it became effective in the year 1984 to give opportunities to corporate governance in conjunction with the other corporate management to provide solutions to various financial problems (Mera, and Renaud, 2016). Corporate governance has for a long time not been discussed extensively within Korea. The first statutory change that took place was in the year 1984, and it gave opportunities for rapid business preparation together with the decision of the country. This study will analyse corporate governance issues and how transparency in Korea is continuously maintained.

 

 

The past and present state of the banking system.

 

Modern banking in Korea was introduced in the year 1878, where a branch office of the first national bank in Pusan was established. Pusan undertook all the banking practices including note-issuing. This allowed Japan to dominate the scene with various networks of the bank branches grew through the time and allowed the bank of Korea to take over the functions such as note-issuing and insurance bank for the central bank of Korea from the year 1909 (Haggard, and Kaufman, 2018). Annexation of Korea by Japan that took place in the year 1910, which meant that all the commercial banks that were had to support the colonial government  Japan. Banking structure was by this time made up of commercial, savings bank and the longtime financial federation association that specialised in loans to the small firms and farmers.

 

Introduction of the New Banking Systems

When Korea separated from Japan in the year 1945, there was a massive disorder together with galloping inflation that affected the economy, exposing the various inadequacies that were prevalent within the financial and economic system. It then resulted in the country drafting the general banking statue and the new central banking statue by the government in the draft. The bank of Korea came into existence in the year 1950 that formed the central bank to ensure that different reforms could help with the inflation and also give the best institutions recognition within the commercial bank under the general bank act (Kidwell, Blackwell, Sias, and  Whidbee, 2016). Nonetheless, the Korean war that took place between the year 1950 to 1953 also made it difficult to implement the enforcement of the proposed reforms until the year 1954. However, by this time, there were already othernew problems that the country had to deal with.

Foundations of the financial system in the present day was done to deal with the economic rehabilitation after the war, and it led to the occurrence of the armistice in the year 1954. The government for a long time owned Korean development bank and established financial revenues for agricultural projects and industrial projects that would help fast and rehabilitation process. All the bank had to meet the financial requirements of the economy. The Korean financial system had two forms of structures; the formal and the informal structures. The formal structures had systems that were highly regulated. The formal banks also included the bank of Korea together with the other financial institutions. The bank of Hani was among the formal institutions.  The informal banking systems included Kyle as part of the market. Restructuring procedures took place in the 1960s to the 1970s that effectively financed the economic growth to maximise the mobilisation process of funds. The funds were channelled to meet the growth and a prosperous economy at the time.

The current status of Korea financial system consists of banking and non-banking institutions. The main financial institutions are the bank of Korea whose main role is to regulate all the activities of all the banks. The government also owns specialised banks whose roles are to supervise the iterations of the other financial institutions. Securities and insurance companies are also checked by this bank. The financial service commission plays a key role in reconstructing the financial status of the country and to promote service provision in the entire financial sector. In the year 2012, there was an implementation of the Korus FTA which was a financial industry service from the united states that accepted unprecedented access to the marketing Korea (Ansar, Flyvbjerg, Budzier, AND Lunn, 2016).

 

(Pilbeam, 2018)

The commitment of the financial services wasoutlined in this document showing that the commitment that the country made with the trade partnership together with the united states and Korea. The arrangement also allowed the standards and regulations that would increase transparency, predictability, and efficiency in operation in Korea in terms of the financial corporation and financial service. Some of the most inherent commitment in this document include the language that is allowed to be used in all the borders that allowed the support to US firms that are operating within Korea.

 

Key financial institutions in Korea

There are more than 148 banks in South Korea that are licensed with 52 commercial banks. Apart from this, there are about five specialised banks and ninety-one special savings bank. South Korea is regulated by the financial supervisory service which is the body that is in charge of examination of responsibilities of other financial institutions under the broad oversight of financial service commission. The bank of Korea is the central bank of the country and is responsible for maintaining the price stability within the country. The outlook of the banking system in Korea has always been negative because of the weak consumer sentiment on the domestic level. The other reason for the poor perception is there increasing policy risks within the country and its borders.

(Pilbeam, 2018)

NongHyup Financial Group

The NongHyup Financial Group was founded in 1961. It was a merger of the Agricultural Banks that came together with the Agricultural Federations. The main roles are to provide the following services; financing mortgages, finance for the new technology finance services. It also offers life and insurance products. The group have their Headquartered in Seoul, and it employs around 13,000 staff. The total assets in this bank were approximated to be about $315 by the year 2015. Kb financial group is the healthier bank that has its headquarter in Seoul.it is also a company that gives numerous financial services to different subsidiaries. This group operates different business segments including retail corporations and other banking operations. Some of the services that are offered include life insurance and security investment. Other corporate bankings are made up of different services with the group’s banking on operations such as treasury activities and office administration. The investment and securities consist of investment bank and trading together with other capital market services. In the year 2016, the banks had assets totalling 275 billion. Hana financial group was created in the year 1971, and it also has its headquarter in Seul. This bank gives mergers and acquisitions together with risk management advisories.

Korea development bank was founded in the year 1954 and provides banking products and investment products at the international level. It had a total of one thousand billion dollars and an income of 13 billion us dollars per the year 2016. Woori offers banking products and services to people and customers. It has both small and medium-sized enterprises and is a major corporation within South Korea. It operates through different segments such as consumer banking and capital markets.

(Pilbeam, 2018)

BNK Financial Group has its headquarters in Pusan. The financial group is one of the top five financial management groups within South Korea. It was founded in the year 2011, and the group with other subsidiaries operates through their financial investment on specialised credit finance together with their other mutual savings segments. Banking business gives services such as internet banking as well as financial assessment. This bank was formerly known as the financial group Inc. whose name changed to BK group in the year 2015. Other major financial players include investment works and equity firms. (Pilbeam, 2018).

Most of these institutions explore a wide range of financial services companies that make up the world of corporate finance, including accounting firms, banks, institutions, and corporations. By knowing who the key players are, it becomes easier to analyse the roles of these institutions and their roles.  It is important to research and develop a plan for networking within an industry.  Most commonly used investment banks include boutique investment bank. It has the main role in providing financial assistance to various firms. The bank of Americans, Merrill Lynch bank is a credit institution that also provides investment opportunities for various people. There are various equity firms including private asset firms that deal with investing and buying ownership interests. These companies are private but are never traded publicly. Some of the most common institutions give the fluid buyouts for leverages and capital venture. Distress investment is are the other ideology that these companies use.

 

 

 

Financial markets. Main markets and institutions

Financial markets refer to venues that are organised for economic players so that they may raise funds and operate through different transactions within their financial organisation. The operation is based on financial instruments and institutions that have been set by either the government or the companies. Financial markets can be categorised into two markets; including direct financing and indirect financing based on the financial intermediaries of the transaction. Indirect financing is used when there are direct exchanges of funds that are to be brokered in terms of loans and deposits as well as the loan markets. These financial interactions and transactions are done by the banks as well as the non- banks in Korea to collect investment and business entities. They provide funds through lending money and by buying direct securities. The funds are raised through indirect securities, including the position of certificates and keeping beneficiary certificates. Financial transactions take place when the fund providers purchase by direct security through the use of customer funds including financial ventures together with their corporate bonds. Direct financial market does not have any value, but they play a massive role and are also more diversified in the financial market. When it comes to maturities of the instruments involved, there is a direct financial market that is generally divided into money matters and capital market. They have to be divided into foreign exchange needs and demands together with financial markets.

 

Additionally, they are divided into exchange markets through the consideration of financial instruments that are involved in the transaction. The first main markets institution is the money markets. The money market represents markets where financial that are no longer used in an area are transacted to maintain supply and demand for the short term funds. In Korea, the money market has to maintain the structure of the market together with the other range of financial markets such as the formation of paper money, the purchasing agreements, and monetary stability bond. Capital markets are the other institution that is crucial. There are those markets that raise long term funding including bonds and stocks. The markets are issued and transacted accordingly (Pilbeam, 2018). Capital markets are usually categorised into the bond market and the stock market. The secondary stock market can also be divided into marketable security where shredding of the listed stocks takes place and the free bond where the unlisted stocks are traded. World markets in Korea is where there are long term bonds that accommodate maturities of one year. The secondary bond market can be done with the face-to-face market during the marketing of the marketable securities and where one seller is traded. There is a component for the off-board market where the bonds suggest enlisted bonds that are traded. Capital markets in Korea involve annual security markets that are ever emerging as assets and how financial institutions mobilise and control the funds. It is these markets where there are assets that are issued based on liquid assets such as account received and mortgage securities. Foreign exchange market is where there is a regulation of trade done on foreign currencies between foreign currency suppliers and foreign currency purchases. Apart from trading foreign exchange, the interbank market allows for foreign-currency to be transferred or exchanged between banks. This market is mostly referred to us interbank market where there is only a basic exchange rate that is determined. Financial derivative market is where various derivatives that are designed for the financial market are reduced to meet the risks in the value that underlies the asset to be traded.

 

Capital market regulatory reform in Korea: Consolidated capital 
markets law

 

The financial derivative market in Korea is made up of interest rates and currency derivatives in conjunction with credit market derivatives as well as those derivatives that are connected with the security market. The Korea security market has been developing significantly for the last five decades. In 1949, the government started issuing bonds. In the year 1953, security dealers organised themselves into an association, and by the year 1956, there was a Korean stock exchange that was established to become operational completely. These reforms have been part of a revolution that has had a massive impact on the country. The stock exchange and the capital markets started to take place in Korea and became successful. From the time, the capital market has been growing steadily and is parallel to the growth of the economy. It is this growth that can be seen to have taken place in three stages with the first one being the early modernisation stage between the year 1953 to the year 1967 (Pilbeam, 2018).

(Pilbeam, 2018)

The capital development stage took place between the year 1968 to the year 1978 and took an average of 10 years. The marketing liberation stage took place between the year 1979 to 1985. This was closely followed by the expansion of the markets stage that took place between the year 1986 to 1999. However, there was the Asian financial crisis which was followed by the reform and its to approximately seven years from the year 1996 to the year 2003. All of them have a tremendous impact on the country.

 

main players, regulatory framework

There are different main players and regulatory frameworks. The first regulatory framework is the Capital Markets Act, which is also known as the career security regulation act is documented within the financial investment service and the capital market activities that started becoming effective in the year 2009. The enactment of the capital market has seen career undertake numerous reforms in terms of the capital market as well as the financial service.

Through the enactment of the active capital market, Korea has undergone numerous reforms or capital markets together with the financial service investments. Security market has developed significantly because of these enactments. The majority of the consolidating legislation has improved the regulation of the capital market through acting on the different states and the governing of the financial industry. It is also done to improve the regulation and supervision of financial institutions. There was the establishment of the new act system that regulated all the investment products traded within the capital market that was introduced for financial investment services. The main players include the companies that deal with the enforcement of the new regulations in the business. The other main players are the financial service companies that reinforced the investment protection mechanisms. It also showed improvements in the structural order of the market integrity through reinforcing regulations that prevented unlawful transactions. New regulations also formed part of the new structural order.

 

Even though the controversial issues in Korean remains part of the new concept, it is expected that the development of foundations of the capital market in Korea remains significantly straight. The acts consist of the major parts including general provisions and the financial investment businesses together with the insurance in the circulation of securities. The other significant component is the penal provisions, which is part of these general marketing act. The government proposed an amendment of this act in the year 2011 os as to discuss issues that dealt with disclosure and unfair tradings. When it came to differences and writings, the amendment of the draft clarifies several concepts that underline the important security regulations.

conclusion

 

In conclusion, as a result of the expectations that are placed upon the financial institutions by the foreign investors, there is the need for different reforms of corporate governance that can solve various issues and problems in the country. Different shareholder activism and bank markets together with the NGO investors have helped in controlling different activities of the shareholders to improve on accountability in the financial sector of Korea. Even though the complicated ownership structures have not been resolved, the liberalism of the government has gradually changed and have transitioned from one that is connected by families or shareholders to one where the power of professionalism and monitoring of the market have been substantially significant. By examining the relationship between corporate governance and globalisation, the data from the corporate government indicate positive liberation equity together with other factors of production. These have been reformed and reinforced by the managerial effect of the improvement in corporate governance. Various findings can confirm that the interactions of equity ownership and the Korean government have increased reformation procedures that reflect the changes in the market foreign investors are getting the benefits.

 

 

 

References

 

Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D. (2016). Does infrastructure investment lead to economic growth or economic fragility? Evidence from China. Oxford Review of Economic Policy, 32(3), 360-390.

Haggard, S., & Kaufman, R. R. (Eds.). (2018). The politics of economic adjustment: international constraints, distributive conflicts, and the state. Princeton University Press.

Kidwell, D. S., Blackwell, D. W., Sias, R. W., & Whidbee, D. A. (2016). Financial institutions, markets, and money. John Wiley & Sons.

Mera, K., & Renaud, B. (2016). Asia’s financial crisis and the role of real estate. Routledge.

Pilbeam, K. (2018). Finance & financial markets. Macmillan International Higher Education.

 

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