Credit Guarantee System Korea Credit Guarantee Fund Chanki Park Chief, International Affairs Team

Chapter 1 Overview of Credit Guarantee System

Type of C.G Related Liability Guarantee for Bank Loans Bank Loans, Overdraft account Discount on Commercial Bills Indirect Financing Payment Guarantee Guarantee for Payment Guarantees of Banks. Direct Financing Guarantee for Bond Issuance Corporate Bond (P-CBO) Guarantee for Commercial Bills Guarantee for Transaction Liabilities Credit Between Enterprises Notes Payable, Mortgage Bills, Notes Receivable Transaction Liabilities Others Guarantee for Performance, Guarantee for Tax Payment Type of Credit Guarantee Program Type of Credit Guarantee Program

② Credit Investigation ① Apply for Credit Guarantee ③ Issue Credit Guarantee ④ Supply goods Enterprises K C G F  Guarantee for Bank Loans Basic Framework Basic Framework  Guarantee for Transaction Liabilities K C G F Buyer Supplier Banks ① Apply for Credit Guarantee ② Credit Investigation ③ Issue Credit Guarantee ⑤ Pay for each transaction ④ Loans

Guarantee Outstanding Guarantee Outstanding TypeUS $ billionProportion Bank Loans % Transaction Liabilities2.48.3% Performance0.41.5% Others0.30.9% Total % As of June 2007 By Type of Guarantee

Change in Guarantee Composition Change in Guarantee Composition

Guarantee Outstanding Guarantee Outstanding By Industry As of June 2007 By Use By Size : SMEs takes 99.9%

Guarantee by Rating Guarantee by Rating As of Dec 2006

Growth in Guarantee Outstanding Growth in Guarantee Outstanding Leverage Ratio

Our Guarantee in Economy Our Guarantee in Economy  Proportion of guarantee outstanding Year GDP3.5%4.8%3.5% Total Loan for SMEs18.5%15.0%10.8%  Guarantee Proportion to SME Loans

Guarantee Outstanding by Amount Guarantee Outstanding by Amount $ thousand By Number of Customers $ thousand By Proportion by Amount ($billion)

Risk Management Risk Management Default and Payment under Guarantee

Chapter 2 Credit Guarantee Procedure

Consultation Application Credit Investigation Credit Evaluation Issue Guarantee Certificate 5th Step EligibilityCeilingPre-investigationEligibilityCeilingPre-investigation Site Visit CCRSSBSSSESSCCRSSBSSSESSDocumentReviewDocumentReview Eligibility Eligibility Ceiling, etc Ceiling, etc Eligibility Eligibility Ceiling, etc Ceiling, etc Site Visit Site Visit Checklist Checklist Rating Rating Checklist Checklist Rating Rating Contract Contract Fee Fee Contract Contract Fee Fee Document Document Review Review Bank to loan Bank to loan Document Document Review Review Bank to loan Bank to loan General Guarantee Procedure General Guarantee Procedure 4th Step 3rd Step 2nd Step 1st Step

Visit KODIT branch office Bring basic document (F/S, B/C, C/R) Visit KODIT branch office Bring basic document (F/S, B/C, C/R) Inquire basic financial data and credit report through intranet [basic eligibility] Inquire basic financial data and credit report through intranet [basic eligibility] About company in general and CEO Financial status and prospect of business About company in general and CEO Financial status and prospect of business Type of guarantee and rough amount Document preparation & visiting appointment Type of guarantee and rough amount Document preparation & visiting appointment Consultation Consultation Financial managerCEO, Owner, etc. Financial managerCEO, Owner, etc. Team managerBranch officer Team managerBranch officer Consultation Initial Decision-making Initial Decision-making Company KODIT Company KODIT Company KODIT

Almost all business entities are eligible for credit guarantees Ineligible Company - Not in operation - Overdue in payments of bank loans - Submitting false document, etc Enterprises Ineligible Industry : - Financial services, gambling, certain luxurious restaurants, etc. Eligibility for Credit Guarantee Eligibility for Credit Guarantee

Where to Issue What to Check City Hall, Branch offices (On-line) CPA or Tax Accountant Tax agency Residential Record Certificate Financial Statement Tax Payment Records Frequent change in address Family lives together Capital structure, profitability Overdue tax, tax payment records Officially reported salesDocument Banks &Financial institution Financial Transaction Records Bank Transaction status Overdue loans or interest Document Required Document Required

Where to Issue What to Check Registration office Company prepares Real Estate Registration Record Company Report Foreclosure records Value as collateral Detailed information about business Document Tax agency Registration office Corporation Registration Certificate Actual and lawful right to run the business Management organized Document Required Document Required

Application Accepted -Check missing document -Check basic eligibility -Check debtor Application Process Document Review and Pre-investigation Application and Pre-investigation Application and Pre-investigation Pre- investigation Pre- investigation Preview documents customer submitted Collect external data and reputation, etc Preview internal information and previous report

On-site Investigation On-site Investigation What and How to Check Fraudulent sales and registration document Fraudulent factory or office Hidden owner with delinquent or bad credit Document for sales, order, tax payment, suppliers and buyers, etc. Factory, facilities, product, employee, etc. Bank account, cashbook, transaction record Management of A/R, A/P Other Checkup Operation and Prospect of Business Budget and finance management Criteria Devotion for the business, personality, Experience, know-how and capability Interview CEO or Owner

Category Constituent Overview, Management Overview, Management Main office, Production, Operation Main office, Production, Operation Monetary Transaction Monetary Transaction Financial Statement Financial Statement Opinion, Rating Opinion, Rating Outline, history, subsidiary CEO, Management, Shareholders CEO, Management, Shareholders Factory, facilities, Product and quality Factory, facilities, Product and quality Suppliers and buyers Order, Sales trend List of Debt, Collateral Overdue history and list, default history List of Debt, Collateral Overdue history and list, default history Balance Sheet, Income Statement, Schedules of cost of goods manufactured, Financial ratio analysis, etc. Rating result Opinion of investigators Framework of Investigation Report Framework of Investigation Report

Guarantee Amount Determination Guarantee Amount Determination  Up to US $3 million  Up to US $7 million including special guarantee programs  Up to US $3 million  Up to US $7 million including special guarantee programs  Ceiling (For each company) Company Request Amount needed Sales Sales x 25% ~ Sales x 50% Sales x 25% ~ Sales x 50% Equity Sales x 25% ~ Sales x 50% Sales x 25% ~ Sales x 50% Shareholder ’ s equity x 3 Shareholder ’ s equity x 3  How much we guarantee?

Credit Evaluation Credit Evaluation What and How to Check Propriety of loan and guarantee Analyze firm and default probability etc. Common Checklist (Violation or not) Rating, Cash-flow, Firm Value What kind of terms bank want? Evaluation opinion Credit Checklist Terms of Loans Criteria Ceiling Limit by Rating, Sales, Equity Limit Check

Approval Approval  Common Approval Process Assistant On-site investigation Evaluation Report (Rating) On-site investigation Evaluation Report (Rating) Team Manager Branch Manager Shareholder ’ s equity x 3 Regulation and Error check-up Regulation and Error check-up Final decision-making Approve or Reject  Special Level of Decision-making Headquarter Approval - Low rating score - Amount higher than branch limit - Without guarantor required

CEO Guarantor CEO Guarantor Management Guarantor Management Guarantor Company  Concluding guarantee contract KODIT Contract  Guarantee Certificate Contract & Issuance Contract & Issuance Guarantee Contract Paying of guarantee fee Guarantee Contract Paying of guarantee fee Guarantee Certificate Loan

Fee and Coverage Ratio Fee and Coverage Ratio  Guarantee Fee Ratio 0.7% ~ 2.5% Rating 0.1%~0.4% Add 0.1%~0.3% Subtract 0.5% ~ 3.0% Determination Basis rate Long-term user Excessive user Innovative Co Low risk gu’tee Bottom : 0.5% Ceiling : 3.0%  Coverage Ratio Share risk with banks, but too complex Standard coverage ratio  50% ~ 90% (at their rating)  Average coverage ratio : 83% (2007)

Thank you !! Korea Credit Guarantee Fund International Affairs Team Tel : (82)