Analysis of the Policy Financing Programs of Bank-Type Public Financial Institutions
- Focusing on KDB and KEXIM
Korea Development Bank (KDB) and Korea Export-Import Bank (KEXIM) assume the important role of policy financing by developing and fostering industries, fostering small-and-medium scale enterprises and providing funding for export promotion. They are public institutions responsible for loss compensation when the government has to compensate for losses which public institutions cannot cover with their earning reserves, and thus their management of fiscal soundness is very important.
As the number of marginal companies increase, especially in industries sensitive to economic cycles such as ship-building and shipping, concerns are continuing to be raised about a potential deterioration of the fiscal soundness of bank-type public financial institutions such as the KDB and KEXIM. In fact, from 2007 to 2017, the government contributed a total of 11.5 trillion Korean won (4.6 trillion cash, 6.9 trillion in-kind) for bank-type public financial institutions to conduct policy finance as well as reinforce their fiscal soundness. This proves that such institutions’ management of fiscal soundness and their efficient and effective pursuit of policy finance utilizing limited resources is extremely important.
This report analyzed the major policy finance programs pursued by KDB and KEXIM, which are subject to concerns about deteriorating fiscal soundness as non-performing loans (NPL) increase in the ship-building and shipping industries. Beginning with an analysis of the financial status and government budget support status of these bank-type public financial institutions, further analyses were conducted on their SME support programs, which form the basis of their policy financing program, potentially overlapping areas of support between the two institutions, as well as their corporate restructuring program which accompanied the recent rise in NPLs.
It was found that bank-type public financial institutions—such as KDB, KEXIM and the Industrial Bank of Korea (IBK)—have a steadily increasing lending, guarantee and investment remaining balance, among which the weight of lending and guarantees for SMEs at end-2016 decreased by 7.5%p from 2009. Therefore, it is necessary to review the appropriateness of the reduced weight of SME loans. In addition, it was pointed out that the KDB On-lending program currently tends to mainly service clients with prime credit ratings and thus needs to increase the efficiency of its SME support; the overlapping area between KEXIM’s external debt guarantee and the mid-to-long-term export insurance of Korea Trade Insurance Corporation needs to be resolved through bilateral consultations between the two institutions toward developing a concrete criteria. Also, as some companies continue to lose value even as they continuously receive financing in the course of restructuring, it was suggested that the specific reasons for such phenomena be analyzed to reinforce the effectiveness of policy financing.