South Korea Money and Banking
When Park Chung Hee became president in 1961, he organized a
highly centralized government with the power to direct the
economy. Park quickly nationalized all banks, took control of
foreign borrowing, and merged the agricultural cooperative
movement with the agricultural bank. The government also took
control of all forms of institutional credit, giving Park great
control over the business community.
The government began to liberalize the banking system in the
mid-1980s by denationalizing several banks, but refused to allow
individual chaebol to acquire controlling shares in these
banks. The government still maintained strong managerial controls
over these banks through the Bank of Korea's Office of Bank
Supervision and Examination, which, under the guidance of the
Monetary Board, supervised and regularly examined banking
institutions. Most of the credit provided by these banks went to
the chaebol, but the banks also were required by law to
make at least one-third of their business loans to small and
medium-sized firms.
South Korea's financial sector in the late 1980s included a
diversified commercial banking system, a securities market, and a
wide range of secondary financial institutions. The banks kept
pace with the rest of the economy, particularly after the
liberalization and modernization of financial institutions in the
mid-1980s and the establishment of the capital market system
based on the Fifth Five-Year Economic and Social Development
Plan.
The Bank of Korea was established as the central bank on June
12, 1950. Its major functions included the issuance of all
currency; the formulation and execution of monetary and credit
policies; the conduct of the bulk of foreign exchange control
business; the research, collection, and preparation of statistics
on many aspects of South Korea's financial system; and the
supervision and regulation of the activities of private banks.
The Bank of Korea engaged in loan and deposit transactions for
the government; additionally, the bank transacted various
government business activities. It also made loans to and
received deposits from other banking institutions; all banks
maintained their solvency through balances at the Bank of Korea.
South Korea's five major commercial banks (Chohung,
Commercial, First, Hanil, and Seoul) were privately held.
Together with two city bank joint ventures--the Kor-Am Bank and
the Shin-Han (co-owned with the United States and Japan
respectively)--there were 961 commercial bank branches across
South Korea at the end of 1987. Local banks were found in every
province.
The Bank of Korea regulated all commercial banking activities
under the provisions of the General Banking Act passed in 1954.
Commercial banks got their money through deposits from the
general public, international loans, and funds borrowed from the
Bank of Korea. The lending activities of commercial banks focused
on short-term loans or discounts because long-term lending was
still the prerogative of such specialized banks as the Korea
Exchange Bank, Korea Housing Bank, and National Agricultural
Cooperatives Federation. In the late 1980s, the banking industry
operated according to a "prime" bank system whereby each major
South Korean bank was assigned one domestic commercial bank.
Under specific legislation designed to achieve certain functions
or to assist special markets, six special banks received funds
from the government and from the sales of debentures.
Three other financial development institutions supplied
credit for business and government projects. The Export-Import
Bank of Korea extended medium- and long-term credit to both
suppliers and buyers to facilitate exports of capital goods and
services, major resources development, and overseas investment.
The Korea Development Bank, which was the government's
shareholder in state-run enterprises, raised funds from the
government as well as from international financial institutions
and foreign banks to fund key industries and infrastructure
projects. The Korea Long-Term Credit Bank financed equipment
investment.
Data as of June 1990
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