Nacf Performance

8/8/2019 Nacf Performance

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Agricultural Finance andAgricultural Cooperative Financial System

in Korea

Kyoung-Soo Chang , Ph. D.

Vice President

Nonghyup CollegeKorea

November 2002


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I. Introduction

II. Operational System

III. Performance

I

V. Strategies for Competitiveness

V. Complementary Schemes

VI. Conclusion

CONTENTS


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Return on Ag. Inv. :

Relatively Low

To Provide

Policy LoanTo Set up

Fin. Institutions

To Solve Farmers Financial Needs

Commercial Bank :

Capital Rationing

HOW?

I. INTRODUCTION


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II. OPERATIONAL SYSTEM

NACF : National Agricultural Cooperative Federation

AC : (Primary) Agricultural Cooperative Federation

MC : Mutual Credit (ACs Financial Business)

BOK : Bank of Korea


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THE GRAND STRATEGY OF KOREAN AG. FINANCE

National Level

NACF(multi-purpose)

Bank

The

Agricultural

Bank

(1956)

Private Bank

Non Financial

Cooperative Org.

The

Agricultural

Bank

(1958)

Govt Bank

Primary Level

Ag. Coops(multi-purpose)

Mutual

Credit Inst.

1950s 1961 Around 1970

Cooperative-Based

Financial System

Private Coop Bank /

Ag. Finance Institution

merged


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ORGANIZATIONAL PICTURE

NACF Headquarter

Central Office for

NACF - Bank

Central Bank for

AC - MC

AC/MC

AC/MC

AC/MC

Branches Branches


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COMPARISON OF FINANCIAL BUSINESSES

NACF-BANK AC-MC

Organization Law Agricultural

Cooperative Law

Agricultural

Cooperative Law

Business Law Bank Law Credit Union Law

Category Specialized Bank Credit Cooperative

Institution

Business Scope Commercial Bank

+Agricultural Bank

Simpler than Bank

Business Region Nation-Wide(Urban Area)

Specific Region(Rural Area)

Number ofInstitutions 1 1383

Number of Offices 868 4068

Shareholders ACs Farmers

(2001)


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FINANCIAL INSTITUTIONS OF KOREA

CLASSIFICATION NUMBER

Banking

Institutions

Commercial

Bank

Nationwide Commercial Banks 11

Local Banks 6

Foreign Bank Branches 43

Specialized

Bank

The Korea Development Bank 1

The Export-Import Bank of Korea 1

The Industrial Bank of Korea 1

The Credit and Banking Sector of NACF 1

The Credit and Banking Sector of NFFC 1

Non-Bank

Depository

Institution

Merchant Banking Corporations 4Mutual Savings and Finance Companies 125

Credit

Cooperative

Institutions

Credit Unions 1,280

Mutual Credit Facilities 1,600

Community Credit Cooperatives 1,770

Postal Savings 1

(2001)


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DIVERSE FUNCTIONS OF NACF

A Bank Agricultural Bank

Commercial Bank

Central Bank for AC-MC

Federation of ACs

Headquarter for Other Business


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AGRICULTURAL FINANCE

NACF - BANK

AC - MC

Including

NACF and/orMC Funds

(Pooling)

With

Govt & BOK

Funds Only

Farmers / Agri-Business

BOK

Govt

Agricultural Policy Loan

InterestCompensation

Agricultural

Finance

System


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POOLING FUNDS : EX. OF SHORT-TERM LOAN

From Amount Interest RateInterest

Compensation

Government 1,659(43.7%)

5.75% 0.75% + 1%

NACF-Bank1,961

(51.6%)11.11% 6.11%

AC-MC180

(4.7%) 11.73% 6.73%

Total3,800

(100%)

For Govts Funds, administration fee of 1% is provided with

Agricultural Cooperative System

(2000)


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CREDIT GUARANTEE SYSTEM

Managing Institution NACF

Contributed by Govt, NACF, NFCF

Target LoansLoans for Agriculture,

Fisheries

Max. GuaranteeIndividual : 1 Billion Won

Agri-Business : 1.5 Billion Won

Guarantee Premium0.2% - 1.0% per annum

According to Credit Rating


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III.PERFORMANCE


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ANNUAL GROWTH RATE OF DEPOSITS

80- 85 85-90 90-95 95-2001

AC-MC 23.2% 29.6% 19.8% 18.0%

NACF-Bank 16.8% 24.5% 14.1% 18.7%

BANK Avg. 10.4% 24.3% 10.6% 12.4%


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RANKING OF DEPOSIT AMONG FIN.INDUSTRY

2001 (bil. won)

NACF + AC 160,544

(NACF) (76,653)

(AC) (83,891)

KOOKMIN BANK 134,901

WOORI BANK 60,965

CHOHUNG BANK 42,839

KOREA EX BANK 38,647


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MARKET SHARE AMONG EACH INDUSTRY

Market Share Rank

NACF-Bank

Deposits 12.9% 2

Loans 13.7% 2

Credit Card 19.0% 2

AC-MCDeposits 43.6% 1

Loans 53.3% 1


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FARMERS BORROWING BY SOURCE (%)

FARM 1980 1990 2001

NACF & ACs 48.7 81.5 85.8

OtherInst. 2.4 4.7 9.4

Money Lenders 49.0 13.8 4.8

Total 100.0 100.0 100.0


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NON-PERFORMING LOAN RATE

2000 2001

NACF-Bank* 3.43% 2.63%

AC-MC** 4.52% 3.25%

2000 2001

NACF-Bank 10.20% 10.26%

AC-MC 7.73% 8.82%

BIS CAPITAL RATIO

* Substandard Loan + Doubtful Loan + Presumed Loss

** Ratio of Loans overdue more than 1 year


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EXPANSION OF AGRICULTURAL POLICY LOANS

0

5000

10000

15000

20000

25000

1980 1985 1990 1995 2000

e m s e m s a

Bi i W


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NET PROFIT BY BUSINESS OF AC

(Million Won)

99 2001

MC 792 915

Purchasing -174 -176

Marketing -99 -127

Insurance 47 104

Processing & Others -363 -514

Total 203 202

* Source : NACF


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NET PROFIT OVER TOTAL ASSET (%)

1999 2001

MC 1.08 1.43

(Including Extension Exp.) (0.81) (1.01)

(Including Non-fin. Bus.) (0.27) (0.42)

Nationwide Bank -1.42 0.79

Regional Bank 0.11 0.41

* Source : KIF


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IV. STRATEGIES FOR COMPETITIVENESS


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ENVIRONMENT : 1960s-1970s

Agricultural & Rural Economy

Population of Farmers : Over 60% of Total Population

Low Agricultural Production

Low Income

Usury Lenders

High Grain Price PolicySaemaul Movement

Agricultural Financial Institution : NACF & ACs


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Financial Policy and MarketsLow Savings

Low Institutional Deposits

Underdeveloped Financial System

Specialized Banks Established to Support

Development of Specific Sectors

* NACF BankNon-Bank Financial Institutions Introduced to

Mobilize Private Money Market Funds

* AC-MC

ENVIRONMENT : 1960s-1970s


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Strategies(Success Factors) :

1960s-1970s

1. Multipurpose-Type Cooperative System

2. NACF as a Mentor for Building ACs3. Complementary Dual Financial System

4. ACs as Agents of Saemaul Movement

5. Supplying Agricultural Policy Loans

through ACs6. Favorable Monetary and Tax Policy

7. Savings Campaign


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(1) Multipurpose Coop System

Small-scale Farming & Homogeneity of Farmers

Failure of Close Coordination between the

Agricultural Bank and Agricultural Coops

Providing Farmers with One Stop & Package

ServicesSynergy Effects : Low Costs, Efficient Process

Unprofitable Business and Activities Sustained

Background

Merits


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(2) NACF as a Mentor for Building ACs

Rural Economy : Poor and Deficit Sector

Lack of Manpower and Management skill

Transferring the Management Know-HowSecuring the Safety of MC Business

Enhancing the Bank Image

Background

Merits


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(3) Complementary Dual

Financial System

Different Supporting LawsDifferent Business Areas

Transferring Funds from Urban Area toR

ural AreaExploiting Favorable Financial Policies for MC

Sharing Computer System

Expanding Business Geographically

Background

Merits


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(4) ACs as Agents of Saemaul

Movement

Saemaul Undongs Spirit war Similar to Coop

SpiritSaemaul Undong Required lots ofInputMaterials and Funds

Channeling Inputs Contributed BusinessGrowth of ACs

AC Became a Center forRural DevelopmentEconomically and Spiritually

Background

Merits


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(5) Supplying Agricultural Policy

Loans through ACs

NACF : Commercial Bank + AgriculturalFinance Bank

Increasing MC Market Power in RuralSociety by Supplying Low Interest RateFunds

Helping MC to Mobilize Deposits

Background

Merits


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(6) Favorable Monetary and Tax

Policy

Corporate Tax Rate : 28%

Deposit Interest Tax : 16.5%

Favorable Tax Rate for AC

- Corporate Tax : 12%

- Deposit Interest Tax : Exempt for Deposits of

20 Million Won or Less

Increasing Profits and Deposits

Background

Merits


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Environment : 1980s-1990s

Agricultural & Rural Economy

SelfSufficiency ofRice Achieved

Still Low Farm Household IncomeWTO

Restructuring AgricultureIncreasing Long-term Investment Loans

Educating Advanced Agricultural Skills


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Environment : 1980s-1990s

Financial Policy and Markets

Inefficient Financial Institutions

Financial Liberalization Trends

Globalization in Financial Markets

Deregulation and Restructuring

New Financial Institutions Allowed to Enter

the Markets

High Competition

Towards Universal Banking


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Strategies(Success Factors) :

1980s-1990s

(1) Nation-Wide Computer Network

(2) Starting Credit Card Business

(3) Favorable Deposit Instruments and Services

(4) NACFs Support for Managerial Safety of ACs

(5) Advertisement and Public Relation


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(1) Nation-wide Computer Network

Background

Merits

NACF : Equipped with Computer On-line System

AC : Without their Own Computer System

The Same System could be Applied to Acswith Low Costs

Nation-wide Computer Network Built up by 1989

Front Line Work Revolutionized

Each AC-MC Became a Part of A Nation-wide

Bank Connecting with NACF & AC Branches


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(2) Starting Credit Card Business

Background

Merits

In 1993, Coop Card was Developed to be Used for

the Transaction between Farmers & AC

Later on, Expanded to the Credit Card

Card Business as well as Computer Network

Increased Competitiveness considerably

NACF : Entered Credit Card Business in the middle

of 80s

AC : Had Computer Network Completed

The Foundation established forI

ntroducingCard to AC


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SUPERVISION Guidance and Auditing

Prudential Regulation

COOPERTIVE SELF-HELP SCHEMES

Mutual Assistance Fund

Deposit Insurance Scheme

GOVT ASSISTANCE

Alleviation of Farmers Debt Problem

Other Favorable Policies

V. COMPLEMENTARY SCHEMES

FOR SOUNDNESS & SAFETY


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SUPERVISION

Authorities Target About

Board of

Audit & Inspection

NACF ACGovt-related

Business

MOFE & Financial

Supervisory ServiceNACF AC

Financial

Business

Ministry of Agriculture

and FisheriesNACF AC Comprehensive

NACF AC Comprehensive


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Board of Audit

& Inspection

Ministry of

Ag. & Fisheries

MOFE & Financial

SupervisoryService

Delegating Authorities

NACF

Auditor

Cooperatives

Audit Committee

NACFs Assets

& Bus. Execution

ACs Assets &

Bus. Execution


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MUTUAL ASSISTANCE FUND

PURPOSE Providing New-Interest Rate Loans

To Support Balanced Growth of Cooperatives

SOURCE AC : 2/100 of Operating Income

NACF : Similar Amount to Contributions of ACs

USES To Support Merging among Acs

To Support Vitalizing Some Business

To support Healing ACs Suffering from Big Losses


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MC DEPOSIT INSURANCE SCHEME

PURPOSESafeguarding Depositors

Maintaining Safety of Coop Financial System

PREMIUM RATE

1/1000 of Deposit Outstanding MAXIMUM OF INSURANCE PAYMENT

50 Million Won Including Principal and Interest

NACF AC

Korea Deposit

Insurance Corporation

MC Deposit

Insurance Fund


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GOVT ASSISTANCE

Measures to Alleviate Debt Burden of FarmersLowering Policy Loan Interest Rate

Expanding Loan Guarantee Fund Contributions

Contribution 1998 2000

Govt 368.6 (57.8%) 900.7 (99.5%)

Fin. Inst. 46.9 (7.4%) 82.0 (9.1%)

Inv. Income 221.9 (34.8%) -77.9 (-8.6%)

Total 637.4 (100.0%) 904.8 (100%)

With This Guarantee Fund, Swapping Farmers

Overdue Loans for Low Interest Rate New Loans

Reducing Bad Loans of Acs


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Competitive Cooperative Financial InstitutionsVehicles for effective Agricultural Finance

National Level Organization in a Coop. Financial SystemA Mentor Leading Small-scale Coop Banks

Competitiveness Depends on StrategiesStrategies adapting to Environments

Govt Role in Agricultural FinanceThe Ultimate Problem Settler keeping Markets Healthy

VI. CONCLUSIONS


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Positive Cycle of Financial

Business

Financial

Bus.

Other Bus.

Financial

Management

Investment,Consumption

Financial

Bus.

Other Bus.

NACF AC Farmers


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New Challenge and Tasks

Challenge and Opportunity Market & Credit Risk has Increased

Global Competition being Deepened

Financial Industry being restructured Towards

Universal Banking System

Strategic Tasks

To Upgrade Risk Management System

NACF : From Bank to Diversified Financial Service

AC : From MC to Regional Bank

Promoting International Alliance among Coop Banks


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Thanks Very Much

Documents

Nacf Performance