Kookmin Bank, one of Korea's largest commercial banks, is planning to establish a credit derivatives desk and is studying the possibility of setting up an equity derivatives operation. "It's our objective to become a market maker," said K.K. Yoo, head of derivatives in Seoul. The bank will look to quote prices on credit-default swaps within 12 months. Yoo said the firm is in the initial planning stage but will look to set up trading systems and procedures as well as possibly establish a structuring operation that would handle products such as credit-linked notes. Yoo said the bank has an alliance with Macquarie Bank and plans to tap its knowledge to launch the desk.
"[Credit derivatives] will become a huge market in Korea," predicted Yoo. "Local banks can use credit derivatives to manage their credit exposure," he said, adding that Kookmin's strong local relationships should enable it to compete against the established international players. Kookmin has been looking at setting up a credit operation for over a year (DW, 2/25/01) but it was put on hold during the merger with the Housing & Commercial Bank last year.
Yoo added that it is also studying the possibility of setting up an equity derivatives operation, given the impending regulatory changes in July that will open this market in Korea (DW, 4/7). Kookmin would study offering such products as over-the-counter options, equity-linked notes and capital guaranteed products but Yoo noted it is only under consideration and too early to elaborate on further.