1. February 2007 Ministry of Finance and Economy Financial Hub Initiative in Korea

2. Table of Contents Why Finance? I 1 Strategy for Financial Hub Promotion II Major Accomplishments III Future Plans IV

3. I. Why Finance?

4. i. Why Finance? (1/3) A New Growth Engine for the Korean Economy Unit: Million Services Manufacturing Agriculture Employment trend by industry

5. i. Why Finance? (2/3) A New Growth Engine for the Korean Economy Unit: % Increased in Value Added (’00) : 50 billion Dollar Increased in Production (’00) : 100 billion Dollar Increased in Employment (’00) : 9 billion employees Increased in Value Added (’00) : 50 billion Dollar Increased in Production (’00) : 100 billion Dollar Increased in Employment (’00) : 9 billion employees Financial industry’s contribution to GDP

6. i. Why Finance? (3/3) A New Growth Engine for the Korean Economy  Services Industry U.S : 78.4%(’04) G7 : 71.5%(’04) OECD : 69.0%(’04)  Services Industry U.S : 78.4%(’04) G7 : 71.5%(’04) OECD : 69.0%(’04) Services Manufacturing & Construction Agriculture Employment structure (’06)

7. II. Strategy for Financial Hub Promotion

8. Strategic Roadmap Clear Goals 3-Stage Development Plan 3-Stage Development Plan I. Strategy for Financial Hub Promotion (1/4) 2

9. Clear Goals for Financial Hub Promotion Volume of bond issuance compared to GDP Volume of non-resident bond issuance Size of fund market compared to GDP Volume of PEF Index for globalization of finances* * (FDI + Volume of Portfolio)/GDP Weight of overseas asset management activities Number of foreign financial companies in Korea Number of world’s top 50 asset management companies in Korea (Inc. regional headquarters) Performance Index (e. g.) Attraction of of financial companies Internationalizationof financial transactions Growthof financial markets financial markets 3 I. Strategy for Financial Hub Promotion (2/4)

10. Creation of solid financial infrastructure Foreign exchange liberalization Financial system deregulation Financial supervision renovation Business and living environment improvement Attraction of foreign financial institutions  Capital market - Asset management business - Restructuring market - Private equity fund (PEF)  Capital market - Asset management business - Restructuring market - Private equity fund (PEF)  Foreign exchange market  Insurance market  Commercial banking  Foreign exchange market  Insurance market  Commercial banking Development of finance market Strategic Roadmap 4 I. Strategy for Financial Hub Promotion (3/4)

11. 3-Stage Development Plan ( ~ 2007) ( ~ 2010) ( ~ 2015) Regional Regional Financial Hub Primary Stage Niche Financial Hub Establishing solid financial infrastructure Specializing in asset management business Growing into a financial hub in Asia in Asia 5 I. Strategy for Financial Hub Promotion (4/4)

12. III. Major Accomplishments

13. i. Reform Measures for Solid Financial Infrastructure(1/4) Eliminate the lingering restrictions on capital account transactionEliminate the lingering restrictions on capital account transaction * Abolish capital account transaction permission system (Jan. 2006) * Abolish capital account transaction permission system (Jan. 2006) Accelerate the timetable for the complete liberalizationAccelerate the timetable for the complete liberalization - by year 2011 by year 2009 - by year 2011 by year 2009 Eliminate the lingering restrictions on capital account transactionEliminate the lingering restrictions on capital account transaction * Abolish capital account transaction permission system (Jan. 2006) * Abolish capital account transaction permission system (Jan. 2006) Accelerate the timetable for the complete liberalizationAccelerate the timetable for the complete liberalization - by year 2011 by year 2009 - by year 2011 by year 2009 Liberalization of Foreign Exchange Market 3 rd Phase 3 rd Phase(’08~’09) 1 st Phase (’02~’05) 2 nd Phase (’06~’07) Red-tapereduction Gradual deregulation deregulation Complete liberalization except for safety measures  FX Liberalization Plan 7

14. “Negative List System” Securities and Exchange Act Futures Trading Act Act on Business of Operating Indirect Investment & Assets Trust Business Act Merchant Banks Act Corporate Restructuring Investment Companies Act Specialized Credit Financial Business Act Securities and Exchange Act Futures Trading Act Act on Business of Operating Indirect Investment & Assets Trust Business Act Merchant Banks Act Corporate Restructuring Investment Companies Act Specialized Credit Financial Business Act“Consolidated Capital Market Act” “Consolidated Future Positive List System Present i. Reform Measures for Solid Financial Infrastructure(2/4) Introduction of the Consolidated Capital Market Act 8

15. i. Reform Measures for Solid Financial Infrastructure(3/4) Communication channel btw government & market participants (e.g. EUCCK, Amcham, FBG, foreign embassies in Korea etc.) In-depth door to door interviews on foreign and domestic financial companies 48 finance related laws were translated in English One-stop grievance handling Communication channel btw government & market participants (e.g. EUCCK, Amcham, FBG, foreign embassies in Korea etc.) In-depth door to door interviews on foreign and domestic financial companies 48 finance related laws were translated in English One-stop grievance handling Introduce no-action letter system (Jul. 2005) Disclose supervision manual (Aug. 2005) Strengthen remedy for violation of private right (Aug. 2005) Introduce no-action letter system (Jul. 2005) Disclose supervision manual (Aug. 2005) Strengthen remedy for violation of private right (Aug. 2005)  Launch 「 fn HUB Korea 」 (Jan. 2006)  Setup more Reasonable Financial Supervision System Establishment of Market-Friendly System 9

16. i. Reform Measures for Solid Financial Infrastructure(4/4) Survey on statistical status of financial professionals & recruiting plan in financial institutions (Sep. 2006) - Publish annual reports of financial skills availability starting from year 2006 Survey on statistical status of financial professionals & recruiting plan in financial institutions (Sep. 2006) - Publish annual reports of financial skills availability starting from year 2006 Attract renowned scholars through active recruitment - Open lecture series of eminent faculty from abroad (Sep. 2006) - Promote to recruit world’s top 100 research scholars in finance Construct relationship with world renowned institution - KAIST-Reuters (Oct. 2006), KAIST-KDB (Mar. 2006) Attract renowned scholars through active recruitment - Open lecture series of eminent faculty from abroad (Sep. 2006) - Promote to recruit world’s top 100 research scholars in finance Construct relationship with world renowned institution - KAIST-Reuters (Oct. 2006), KAIST-KDB (Mar. 2006)  Launch 「 Financial Skills Network Center 」 (Jun. 2006)  Open 「 Graduate School of Finance 」 at KAIST (Mar. 2006) Build-up of Institutes to develop Finance Professionals 10

17. ii. Improvements to enhance Competitiveness (1/4) Establish ‘Consolidated Stock Exchange’ (KRX) (Jan. 2005) Complete restructuring on investment trust companies (May 2005) Establish ‘Consolidated Stock Exchange’ (KRX) (Jan. 2005) Complete restructuring on investment trust companies (May 2005) Build Market Infrastructure Increase Demand for Assets under Management Introduce retirement pension (Dec. 2005) Increase outsourcing ratio of pension funds * 3.3%(’03) 8.7%(’04) 10.9%(’05) Relax Related Regulations Lighten investment limit for ‘fund of fund’ * Ratio limit : 50% 100% Reduce the minimum capital requirement for asset management companies * Capital requirements : 10bn won 3bn won Asset Management Market 13

18. ii. Improvements to enhance Competitiveness(2/4) Issue 20 yr. government bonds successfully - Monthly issue 550 bn Won from January 2006 Increase Issuance of Long-Term Bonds Internationalize Bond Market Reform of bond issuance procedure for foreign investors’ easier access to the market (e.g. Permit the international accounting standards & American accounting standards (Dec. 2004) ) Issuance of Kimchi bonds worth of $300 mn by Bear Stearns (Jun. 2006) Issuance of Arirang bonds worth of $ 500 mn (Jan. 2007) Bond Market Innovate Market Infrastructure Create environment for foreign credit rating Ease agencies’ entry into domestic market (Jul. 2006) - Requirement of the number of professionals : 30 20 14

19. ii. Improvements to enhance Competitiveness(3/4) Restructuring Market 15 Amend KAMCO act and allow investment of overseas non-performing assets (Feb. 2006) Collect information of restructuring markets in Northeast Asia Amend KAMCO act and allow investment of overseas non-performing assets (Feb. 2006) Collect information of restructuring markets in Northeast Asia Introduce PEF through ‘Indirect Investment Asset Management Business Act’ (Apr. 2004) Broaden range of investors and increase flexibilities in investment (Jun. 2006) - Permit the investment of venture capitals - Lighten requirements for SPC shareholders Introduce PEF through ‘Indirect Investment Asset Management Business Act’ (Apr. 2004) Broaden range of investors and increase flexibilities in investment (Jun. 2006) - Permit the investment of venture capitals - Lighten requirements for SPC shareholders

20. ii. Improvements to enhance Competitiveness(4/4)  Build Infrastructure for Asset Management - Establish IT, risk management & evaluation system (Jul. 2006)  Build Infrastructure for Asset Management - Establish IT, risk management & evaluation system (Jul. 2006) Establishment Of KIC (Jun. 2005)  Build Mid-Long Term Investment Policy  Build Mid-Long Term Investment Policy (Sep. 2006) - Build investment manual (e.g. investment principle, investment asset group)  Build Mid-Long Term Investment Policy  Build Mid-Long Term Investment Policy (Sep. 2006) - Build investment manual (e.g. investment principle, investment asset group)  Finalize Asset Trust Contract - Bank of Korea : $ 17 bn (Jun. 2006) - Ministry of Finance and Economy : $ 3 bn (Sep. 2006)  Finalize Asset Trust Contract - Bank of Korea : $ 17 bn (Jun. 2006) - Ministry of Finance and Economy : $ 3 bn (Sep. 2006)  Start Investment - Invest $1 bn through bond passive index (Nov. 2006)  Start Investment - Invest $1 bn through bond passive index (Nov. 2006) 16

21.  95 % Increase in the last 3 years. Total Market Capitalization  Qualitative changes iii. Market Performance by Sector (1/5) Stock Market 723 1,568 357 0 250 500 750 1,000 USD billion 429 836 ’ 04 ’ 05 ’ 06.11Hong Kong (’06.11) Singapore (’06.11) Revaluation on the Korean Market Increase of investment pool (e.g. Installment funds) Share of institution investors * 15.58 % (’03) 18.56%(’05) Longer investment horizon 17

22. Bond Market  Steady annual increase  Issue 20 yr. treasury bonds successfully Outstanding amount of Issued Bonds iii. Market Performance by Sector (2/5) 765.1 838 0 250 500 750 1,000 USD billion 673.5 ’ 04 ’ 05 ’ 07.1 18

23.  Almost doubled in only 3 yrs since 2004 Daily Trading Volume of Foreign Exchange USD billion iii. Market Performance by Sector (3/5) Foreign Exchange Market Hong Kong (’04) Singapore (’04) 22.3 102.0 125.0 0 50 100 150 18.6 32.0 ’04’05’06 19

24. Asset Management Market  No. of foreign asset mgt. companies in Korea : 6(’02) 14(’06) Assets Under ManagementPension Funds Operation iii. Market Performance by Sector (4/5) 179.2 201.4 259.7 0 100 200 300 USD billion 121.1 ’ 03’04’05 ’06 0 100 200 300 400 USD billion 298.9 315.9 378.9 172.0 ’03’04’05’06(P) 20

25. iii. Market Performance by Sector (5/5) Derivatives Market Transaction Volume 18.0 38.0 0 10 20 30 40 USD Trillion/yr 25.7 ’ 03 ’ 04 ‘ 05  Trading Volume KOSPI200 Futures : 4 th in the World * 1.10(’03) 1.92(’05) KOSPI200 Options : 1 st in the World * 13.59(’03) 30.33(’05) 21

26. iii. Market Performance by Sector (6/6)  Introduced in 2004  20 PEFs established (as of Nov. 2006) PEF Market  Major vehicles CRC, CRF, CRV, KAMCO  KAMCO play a critical role in the NPL market Restructuring Market NPL acquired (USD bn.) NPL acquired (USD bn.) NPL resolved (USD bn.) NPL resolved (USD bn.) 39.7 30.2 Contracted (USD bn.) Contracted (USD bn.) 4.9 Invested (USD bn.) Invested (USD bn.) 1.08 22

27. 25 Financial Industry Status by Sector (end of 2006) BankingSecuritiesInsuranceAsset Mgt. Total 18545149 Domestic 15323035 Foreign * 3 222114 * Criterion for foreign financial company : Over 50% share + the right of management 38 (Branch) (Unit : No.)

28. III. Future Plans

29. i. Improvements of Financial Infrastructure(1/2)  Enact the ‘Consolidated Capital Market Act’ Wait for the enactment by the National Assembly  Accelerate Comprehensive Financial Deregulation Third round ‘Zero-Base Deregulation’ (40 Laws, 639 Tasks) Focus on 4 major function - Area of focus : business operation, corporate finance, consumer protection, finance sanction 27

30. i. Improvements of Financial Infrastructure (2/2)  Innovate the Financial Supervisory System Continuously Encourage the use of no-action letter system Improve regulatory regime under the proposed ‘Consolidated Capital Market Act’  Execute Foreign Exchange Market Liberalization Facilitate the rescheduled FX liberalization Promote internationalization of Korean Won, vitalize overseas investment Establish legal base for the ‘Financial Hub Initiative’ Clarify the principle of enhancing transparency & accelerating competition in the financial market Enact the ‘Financial Hub Promotion Act’  Enact the ‘Financial Hub Promotion Act’ 28

31. ii. Development of Financial Markets(1/2) Promote competition in asset management business Increase outsourcing ratio of pension funds Activate retirement pension Promote competition in asset management business Increase outsourcing ratio of pension funds Activate retirement pension Asset Management Market PEF Market Increase the autonomy of PEF operation Attract more participants in PEF market (e.g. Venture capitals, insurance companies) Investment Banking · Enlarge the size of securities companies · Develop models for Korean investment banking services 29

32. ii. Development of Financial Markets(2/2) Enlarge the issuance of long-term bonds continuously Attract more foreign investors into the Korean bond market (e.g. Arirang Bond) Enlarge the issuance of long-term bonds continuously Attract more foreign investors into the Korean bond market (e.g. Arirang Bond) Bond Market Derivative Market Ease regulation on OTC derivative products * Positive system negative system Diversify the listed derivative products Restructuring Market · Build information portal of restructuring markets in Northeast Asia · Foster leading market participants of the Northeast Asian market 30

33. iii. Leading the Way in Northeast Asia Attracting Foreign Financial Institutions Strengthen the role of KIC Establish the International Financial Services Center (IFSC) Promote foreign companies’ listing in KRX Have strategic alliances with overseas Globalization of Korea Exchange Active Role in Regional Finance Infra Project Export Korean financial IT / financial system Channel various types of funds (e.g. e-Asia Fund* (ADB), ODA) 31

34. New Business Opportunities New Growth Engine for the 21 st century Financial Hub Strategy Korean Economy Foreign Investors Prosperity in the Future 33