Government-owned Korea Development Bank is planning to become the first domestic bank to offer structured credit products as well as trade credit-default swaps next year to take advantage of a growing hunger for credit risk in Korea. H.G. Chung, head of the financial engineering team in Seoul, said the bank is looking to tap the growing interest for the products in Korea, as well as reduce credit risk on KDB's balance sheet through offering synthetic balance sheet CDOs. Chung continued that the bank will target insurance companies as well as pension funds. The size of the initial synthetic CDO will likely be at least USD100 million.
The bank hopes to subsequently offer additional CDOs the following year, though it is still in discussion. Chung added that the bank expects to issue credit-linked notes referenced to Korean corporates and enter the credit-default swap trading market. It anticipates becoming active in both customer and proprietary business. Chung continued that the bank will likely hire a team of two to three credit derivative traders for the effort.
"They're the first domestic bank to do this," said K.K. Yoo, head of derivatives at Kookmin Bank in Seoul. Kookmin has also been interested in entering this market (DW, 2/26) but has put the plans on hold as it completes its merger with the Housing & Commercial Bank.