New Wind of Change
in Banking Sector

Korea Development Bank allowed to run retail banking and operate deposit accounts from Jan. 1

Korea Development Bank(KDB) will join the commercial banks to handle consumer loans from Jan. 1 next year, in a shift from its usual role of providing loans and guarantees to cover huge national or corporate projects, especially in foreign countries.
The Financial Services Commission said Sept. 9 that the law on the establishment of KDB will be revised to set the schedule of the privatization of the state-run bank and its business areas including retail banking allowing the bank to accept deposits and offer personal loans. This means that the revised law will remove the limit on the KDB's business areas that only facilitated providing loans and guarantees for huge national and overseas corporate projects.
A KDB official said KDB will be allowed to do all the banking activities related to the retail banking and the bank doesn't have to get prior approval from the financial authorities the disposition of its earnings and other matters in the process of closing its books for a fiscal year in all practices, becoming just like a private commercial bank.
In line with the FSC decision, KDB is already on its way to prepare for the changed role in its banking business such as an electronic system to process household loans by the end of this year. The bank will also build an Internet banking system to attract deposits. The bank has also been studying the possibility of taking over a small retail financial company and attract the depositors at the postal offices.
FSC also decided to continue to keep government guarantees on KDB loans issued before the privatization, and loans that the bank borrowed from foreign banks in a bid to minimize the confusion that might arise in the process of the bank's privatization, the official said.
Korea Development Fund to be set up with funds from the sale of KDB stakes, will lend loans to SMEs through indirect financing. KDF will provide loans to SMEs through a financial company or jointly with the financial company.
KDB will also retain the function of the old KDB including overseas borrowing, financing for Social Overhead Capital projects and keeping the capital market stable.
KDB will be allowed to issue bonds worth 30 times its capital and retained funds and the government can guarantee KDB bonds by securing parliamentary approvals prior to the bond issuance, the KDB official said.
However, the stakes that KDB holds in public corporations such as the Korea Electric Power Corp., Korea Water Resources Corp., Korea National Housing Corp., Korea Land Corp. and Korea Tourism Agency will be transferred to KDF.
KDF will have 15 trillion won in capital and leave its early work to KDB with only president and auditor to be named in the early stages. KDF will have 9-man operation committee to oversee its operation.
With the change in KDB's role, its management structure will also be changed to more effectively run the bank. Talks in the banking community are that KDB will have a foreign financial expert to expand its global operation. It also include the increased participation of foreign investment banks for KDB to expand its global financial network to make the job of making Korea a financial hub in northeast Asia easier.
FSC is also considering to bring more outside financial experts to sit on the KDB board to oversee the bank's international expansion.
When KDB is upgraded to a financial holding company, it will have its affiliates, Korea Development Fund, Daewoo securities, KDB Capital, and KDB Asset Management.
KDB Holding Co. will have a capital of 30 trillion won and foreign investment banks such as Goldman Sachs will be invited to hold stakes in the new holding company before offering its shares to public. nw

Gov. Min Euoo-sung of Korea Development Bank.