Taking Care of SMEs in Financial Needs

IBK supplies 100 bln won to Korea Credit Guarantee Fund to help SMEs in financial problems

The Industrial Bank of Korea, has decided to supply 100 billion won to the Korea Credit Guarantee Fund and the Kibo Technology Fund in support of SMEs in need of financial assistance by signing a business cooperative agreement with the two credit guarantee organizations on Feb. 26 at the IBK head office in downtown Seoul.
The two credit guarantee institutions will issue 1.2 trillion won worth of new credit guarantees to SMEs financial borrowings to ease fund shortages being suffered by those small companies. The credit guarantee funds will issue credit guarantees to SMEs recommended by the IBK. The IBK will only select SMEs with very good growth potential, but suffer from the lack of funds. Each SME borrower recommended by the IBK will be able to get the maximum of 3 billion won in loans for the maximum repayable period of 5 years on concessional interest rates, down 0.5 percent per annum and 0.3 percent cut in guarantee fees.
The Industrial Bank of Korea was established under the Industrial Bank of Korea (IBK Act) in 1961, the Bank shares a special relationship with the Korean government. The Bank's primary objective is to "promote independent economic activities of small and medium-sized enterprises (SMEs) and to enhance their economic position in the Korean economy." Due to this public policy role, the government retains full control over the Bank including the appointment of management, approval of budgetary and operation plans of the Bank.
On 11 December 2003, an amendment was made to the IBK Act, giving the Bank more autonomy in its operations. Among other activities, the Bank was allowed to invest in the equities and debt securities of the SMEs and to set up budgeting requirements for general and administrative expenses besides labor costs. An additional amendment was made to the Articles of Incorporation of the Act on 30 March 2005, granting the Bank to utilize more diverse sources of capital.
Due to the Bank's critical role in implementing SME promotion policies, it receives the highest level of implicit and explicit support from the government. Operations are guaranteed in principle by Article 43 of the IBK Act, which states, "The Bank shall cover any net loss incurred during a particular fiscal year with its reserves and if the reserves are insufficient, the government shall provide funds to cover the deficit." As the Article stipulates, if the Bank's reserves cannot cover the annual net losses incurred during operations, the Korean government is legally obligated to replenish the deficit. Furthermore, it is the only bank in Korea allowed to issue Small and Medium Industry Finance (SMIF) bonds. SMIF bonds provide the Bank with a low cost funding advantage over commercial banks. The aggregate outstanding balance of SMIF bonds can be issued to twenty times the Bank's paid-in capital plus its reserves.
Ownership structure prior to 1994, the Bank's entire issued share capital was held by the Korean government. The government ownership decreased to 64.5% following the issue of new shares to the public and Bank employees in 1994. In late 1999, the government announced a recapitalization plan to rehabilitate investment trust companies still reeling from the Asian financial crisis. Along with the two other state-controlled banks, the Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM), IBK was chosen to facilitate the initiative.
A major part of the plan involved the partitioning of the Bank's equity stock. Upon its implementation, KDB and Korea Investment & Securities Co., Ltd. (KITC) became new Bank shareholders in December 1999, receiving portions of shares previously held by the government. KEXIM also became a shareholder by purchasing KRW 200 billion in shares on January 29, and KRW 166.7 billion on June 23 in 2000. Coinciding with the Bank's listing on the Korea Stock Exchange in December 2003, KEXIM and KITC sold 46,000,000 of the Bank's shares in a public offering. KITC relinquished the rest of its ownership in the Bank by selling its remaining 48,532,922 common shares in a Global Depository Shares (GDS) offering the same month
At year-end 2007, the government directly owned 51.0% of the Bank's shares, combined with its indirect holdings via KDB and KEXIM, which were 12.5% and 3.2%, respectively, accounting for approximately 67% of the Bank's outstanding shares. In addition, foreign ownership accounts for 20.8% of the Bank's common shares as of year-end 2007. nw

IBK President and CEO Yun Yong-ro, KODIT Chairman & CEO Ahn Taek-soo and Kibo Technology Fund Chairman & President Jin Byung-hwa hold an MOU on providing liquidity to SMEs they signed on Feb. 26.