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Derivatives

Korean Banking Giant Eyes Credit Mart Debut

Government-owned Korea Development Bank is gearing up to launch a credit derivatives desk and structure an in-house synthetic collateralized debt obligation by year-end.

Government-owned Korea Development Bank is gearing up to launch a credit derivatives desk and structure an in-house synthetic collateralized debt obligation by year-end. Ho Man Yoon, general manager of the financial engineering department in Seoul, transferred from the New York branch last year to head up the team and is now finalizing the group's plans. He continued that with the Basel II capital adequacy accord coming in 2006, the bank is looking at ways to address credit risk on its balance sheet. "We're making plans to mitigate our credit exposure and CDOs are under consideration," added Yoon. He said while the plan is in the initial stages, KDB is speaking with international banks and may hire consultants to assist with systems and modeling for such products. Yoon said the bank has yet to decide if it will partner with another house or structure a CDO on its own.

KDB has been eyeing credit products for a few years (DW, 12/17/01) but Yoon said the bank was sidetracked by the developments in the fixed income derivatives and asset-backed securities markets. Credit-default swap trading on domestic names is also under discussion and a desk could be set up by the end of the year, he added.

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