A government plan to merge a state-controlled bank and financial corporation is expected to reduce state lending capacity, backfiring on cash-short small and medium enterprises, experts said on Wednesday.
The move came as state authorities are set to integrate the Korea Development Bank and the Korea Financial Corp. in the course of reorganizing state-controlled brokerages.
The KDB and the KoFC were established in 1954 and 2009, respectively, largely to boost the national economy by providing credit and cash to business enterprises ― including small and medium-sized businesses that lack sufficient financial credit to win large orders here and abroad.
But a KDB-KoFC merger would significantly reduce their corporate capital based on the Bank for International Settlements standard, thus weakening their ability to lend to corporate borrowers. Experts predict that the capital adequacy ratio of the new institution will decrease to 19.6 trillion won ($17.5 billion), down about 25.8 percent from what the KDB and the KoFC currently can offer as two separate lenders.
A lower capital adequacy ratio means lower lending capacity, ultimately leading to a credit fall both here and overseas.
The merged entity’s lendable fund is expected to shrink by about 37 percent to about 49.8 trillion won from 78.9 trillion won pre-integration. This indicates about 92,000 job opportunities will disappear, countering the Park administration’s “70 percent employment rate” slogan, which President Park Geun-hye pledged during her presidential campaign last year.
The integration agenda was raised by the Financial Services Commission to boost efficiency in state-assisted financing for growing companies.
The reorganization of state-controlled financial firms has been one of the four big financial agendas supported by the Park administration. The other three are privatization of state-controlled Woori Financial Group, reorganization of the financial regulatory system and correcting old problems in corporate governance of financial firms.
Financial Services Commission chief Shin Je-yoon had told reporters in June that the reorganization of state financial firms, defying simple solutions, was more troublesome than the three other projects.
By Chung Joo-won (
joowonc@heraldcorp.com)
