On Dec. 1,2016, the KDIC signed an agreement to sell a 29.7 percent stake in Woori Bank to seven investors who will collectively own the bank. The deal put a finishing touch on the long and arduous effort to privatize Woori, which has been one of the greatest challenges for the Korean financial industry over the last 16 years. The sale of shares will bring nearly 2.4 trillion won to the KDIC’s coffers and significantly increase the recovery of public funds injected into Woori.
After four failed attempts at finding a single investor for the controlling stake, it was decided that a new sales method should be tried based on the understanding that a faster sale of Woori is essential to facilitate the development of the domestic financial industry and the recovery of the maximum amount of public funds. However, selling a bank to a group of investors who would form a multi-owner structure is not a commonly used sales method and therefore, could not guarantee success.
Still, the KDIC and the government reaffirmed its commitment to Woori’s privatization and rallied all resources under the direction of a team headed by the Executive Vice President created in August with the mission to see the sale through. It made every effort to identify investor needs and incorporate them in the sales process and revised the MOU with Woori to ease the condition for removing the KDIC’s control over the bank.
The KDIC was established on June 1, 1996 after the legislation of the Depositor Protection Act (DPA) on Dec. 29, 1995. The KDIC started as a protector of bank depositors, while there were separate funds for non-bank financial sectors. The coverage was initially 20 million won per depositor, but the financial instability that resulted from the 1997 Asian financial crisis led the government to adopting a temporary blanket coverage scheme.
The DPA was revised at the end of 1997, and, accordingly, separate deposit insurance funds were consolidated into the KDIC’s Deposit Insurance Fund in April 1998. Not only deposits of banks but also those held by securities companies, insurance companies, merchant banks, mutual savings banks, and credit unions (excluded from the coverage since 2004) became eligible for protection. This created a single, comprehensive, and integrated deposit insurance system designed to enhance financial stability and to ensure the public’s confidence in the financial system.
A transition was made to a limited coverage of 50 million won in 2001. The higher limit was established to ensure sustainable stability in the financial market. As the system is not immune to the risk of moral hazard, the KDIC closely monitors both financial and non-financial risks of insured financial institutions.
Although Korea’s deposit insurance system has only been in operation for a relatively short period of time, it has shown remarkable growth and will continue to make a positive contribution to financial stability through the adoption of various devices and policies designed to further advance the deposit insurance system.
The KDIC’s funds have separate accounts for banks, investment traders and brokers, life insurance companies, non-life insurance companies, merchant banks, mutual savings banks and credit unions (only in the case of the Deposit Insurance Fund Bond Redemption Fund). These accounts are managed separately.
Though between-account transactions within the same fund are allowed, transactions between the Deposit Insurance Fund and the Deposit Insurance Fund Bond Redemption Fund are prohibited.
Under the Public Fund Redemption Plan announced by the government in 2002, it was decided that assets and liabilities related to financial restructuring would be separated from the Deposit Insurance Fund (DIF) on Jan. 1, 2003 to set up a new fund called the DIF Bond Redemption Fund. The DIF Bond Redemption Fund is used for completing the financial restructuring process and recovering related public funds. It was also decided that the DIF would be funded with insurance premiums paid after 2003 to deal with insurance contingencies that occur after 2003.
_예금보험공사 우리은행.jpg)
