2012 Supervision & Examination Agenda Kwon In-Won, Director General Supervision Coordination Department March 9, 2012

Financial Supervisory Service Contents 2 Overview of Financial Services Industry I II Key Economic and Regulatory Challenges IV Examination Agenda III Supervision Agenda

Financial Supervisory Service Overview of Financial Services Industry I

Financial Supervisory Service 4 Soundness Measures (in percent) Short-term borrowings Loan-to-deposit ratio What we did…  Improve bank governance -Fine-tune internal governance policies -Stronger commitment to transparency and accountability  Support banks looking to overseas markets -Post-filing Overview  Bank assets and capital bouncing back since 2008 financial crisis  Better liquidity conditions I. Overview — Banking Note: $1 = 1,110 won Total Assets and Capital (in billions of dollars) Total assets Capital

Financial Supervisory Service I. Overview — Financial Investment Services 5 Note: $1 = 1,110 won Net Income and ROE of Securities Companies (in billions of dollars, in percent) ROE Net Income Assets under Management Breakdown (in billions of dollars) What we did…  Amendments to the Capital Markets Act -Home-grown prime brokers & hedge funds Overview  Securities companies’ net income and ROE recovering  Diverse business areas -Wrap accounts, CMA, structured products, etc.  Slow growth in asset management industry Note: $1 = 1,110 won AUM as % of GDP 65% 64% 58% 59%

Financial Supervisory Service Note: The numbers for 2009 and thereafter are RBC-based Total Assets and Solvency Margin (in billions of dollars) Premium Income Volume by Country, as of End-2010 (in billions of dollars) I. Overview — Insurance What we did…  Amendments to the Insurance Business Act -Negative-list regulation -Minimum prior review before sale Overview  Steady asset growth  Premium income 9 th largest globally Market share 26.9%12.9%7.2% 6.5% 5.5%5.0%4.0%2.7%2.6%2.2% Total assets Solvency margin of life insurers Solvency margin of non-life insurers 6

Financial Supervisory Service 7 Number of Foreign Financial Institutions Operating in Korea I. Overview — Foreign Financial Companies Overview  148 foreign financial companies operating in Korea (as of end-2011) -57 banks, 44 financial investment companies, 32 insurance companies What we did…  Amendments to the Financial Center Act - Incentives to foreign financial businesses  IFC Seoul in Yeoui-do

Financial Supervisory Service II Key Economic and Regulatory Challenges

Financial Supervisory Service 9 II. Key Economic Challenges Global  Is global growth picking up?  Downside risks? Korea  Less-than-robust domestic growth  Underperforming SMEs  Credit risk likely to grow Economic uncertainties in both home and abroad and their potential impact on financial market stability

Financial Supervisory Service 10 II. Key Regulatory Challenges Financial market stability and stronger investor and consumer protection Banking  Deteriorating debt- servicing capability  Heightened credit risk  Basel III Financial Investment Services  Volatility in equity markets  Investor protection Insurance  Risk-based supervision  Consumer protection

Financial Supervisory Service III Supervision Agenda

Financial Supervisory Service 12 III. Supervision Agenda  Financial market stability  Consumer protection  Supervision in support of low-income borrowers and SMEs  Effective financial supervision  Open and transparent supervision

Financial Supervisory Service 13 III. Supervision Agenda Goal Tasks Financial market stability  More effective foreign currency liquidity management  Creditor-led restructuring of distressed companies  Safe and effective risk management

Financial Supervisory Service 14 III. Supervision Agenda Goal Tasks Consumer protection  Greater supervisory resources to deal with abuse or misconduct  Consumer financial education  Facilitate effective market discipline

Financial Supervisory Service 15 III. Supervision Agenda Goal Tasks Supervision in support of low-income borrowers and SMEs  Loan fraud, insurance fraud, price manipulation, and voice phishing  Credit and other financial services for low-income borrowers  Level playing field and fair credit access for SMEs

Financial Supervisory Service 16 III. Supervision Agenda Goal Tasks Effective financial supervision  Corporate governance and greater management transparency and accountability  International cooperation  Safer online financial transactions

Financial Supervisory Service 17 III. Supervision Agenda Goal Tasks Open and transparent supervision  Effective communication and market confidence  Greater organizational efficiency, improve supervisory process, and strengthen market oversight capability

Financial Supervisory Service IV Examination Agenda

Financial Supervisory Service 19 IV. Examination Agenda  Safety and soundness of financial markets and firms  Consumer protection and supervisory enforcement  Transparency and efficacy of supervisory examination

Financial Supervisory Service 20 Goal Tasks Safety and soundness of financial markets and firms  Strong foreign currency liquidity and asset-liability management  Preemptive actions on potential risks  Intensify onsite examination of non-bank lenders  Restrain unsustainable competition and business conduct IV. Examination Agenda

Financial Supervisory Service 21 Goal Tasks Consumer protection and supervisory enforcement  Actions against illegal activities and abusive lending practices  Thorough examinations of IT-related activities  Non-arm’s length transactions with large shareholders IV. Examination Agenda

Financial Supervisory Service 22 Goal Tasks Transparency and efficacy of supervisory examination  Better internal audit of financial companies  Examination efficacy through better info sharing and coordination  Enhance examination quality IV. Examination Agenda

Financial Supervisory Service IV. Examination Agenda — Foreign Financial Companies 23  Supervision and examination tailored to high risk activities (e.g. large investment banking)  Monitor risk profiles of foreign companies together with home country risks

Thank you