The Financial Services Commission (FSC) announced on Nov. 1 that it has overhauled the roles of the Korea Development Bank (KDB) and the Industrial Bank of Korea (IBK) in order to prevent them from infringing upon the private sector in order to reduce the possibility of moral hazards.
According to its plan, the IBK is to provide much more assistance for startups and firms in their early growth stage. Specifically, its annual startup support fund will be increased from 9.1 trillion won (US$8.0 billion) to 15 trillion won (US$13.2 billion) between 2014 and 2018. The latter amount is equivalent to 30 percent of the bank’s annual support fund. In the meantime, the KDB focuses more on mid-sized and smaller enterprises. To this end, its annual support fund will be increased from 35 percent (21.6 trillion won or US$19.0 billion) to 50 percent (30 trillion won or US$26.3 billion) between this year and 2018.
Under the circumstances, the major beneficiaries of the KDB’s support fund are expected to include future growth sectors instead of the six marginal industries of shipbuilding, shipping, construction, petrochemicals, automobiles and steel. As of the end of 2014, Korean banks recorded total lending of 168 trillion won (US$147 billion) in the six industries, and the KDB and the IBK accounted for 55.4 trillion won (US$48.6 billion) of it.
The KDB is planning to reduce its lending to these industries while increasing its loans to future growth sectors from 13.5 trillion won (US$11.9 billion) to at least 20 trillion won (US$17.6 billion) between 2014 and 2018. Likewise, the IBK will step up its amount from 29.6 trillion won (US$26.0 billion) to 33 trillion won (US$29 billion). The future growth sectors refer to the 19 government-designated industries including intelligent robots, wearable smart gadgets and smart biotechnology.
At the same time, the focus of the KDB’s investment banking business will shift toward those segments that the private sector is unwilling to engaged with due to the high possibility of market failure. These include international bond issuance, project financing, M&As of small firms, social overhead capital relating to inter-Korean unification and PEFs for business restructuring purposes.
In addition, the FSC is going to drive the KDB to dispose of companies in its possession for three years to come, including 86 small and venture firms and 11 companies currently in restructuring processes such as Korea Aerospace Industries, GM Korea and Daewoo Shipbuilding & Marine Engineering. This is to expedite the restructuring of these companies, which has been delayed due to the principle of sale value maximization.