BMI's Executive Summary

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From Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors.

South Korea's overall CBBER is 72.0. The equivalent figures for the US and the eurozone are 84.8 and 81.4, respectively. South Korea's CBBER is high by regional standards. In the Asia-Pacific Region, only Australia, Hong Kong, Japan and Singapore rank more highly.

in the CBBER, the most important aspect is the banking market element of the limits of potential returns. This element accounts for 42% of the overall rating. South Korea's rating for this element – 73.1 – is higher than its overall CBBER and higher than the country element of the limits of potential returns – 70.8. Overall, the South Korean banking sector is relatively large in terms of total assets, and steady growth is expected into the future.

More broadly, the South Korean economy expanded at a rate of 5.2% year-on-year (y-o-y) in Q307, prompting us to raise our full-year GDP growth for 2007 from 4.7% to 5.0%. South Korean exports have held up well due to strong demand from key markets like China and the EU. Moreover, rising investment and improving consumer sentiment have lifted the prospects for domestic demand going forward. We are expecting this momentum to be maintained in 2008 and have set our GDP projection at 5.1%. Inflation is, however, becoming a concern and we expect a further tightening of monetary policy.