Break-up of Korea Development Bank

Move creates KDB Financial Holding Co. and Korea Finance Corp. in an effort to spur expansion of the financial industry

The Korea Development Bank has been split into two financial companies in two separate ceremonies on Oct. 28 in line with the government plan to expand and upgrade Korea’s financial reach overseas. The KDB Financial Holding Co., a newly created offshoot of the KDB, is a civilian commercial bank with a number of affiliates including Daewoo Securities Co., KDB Capital, KDB Asset Management and Infra Asset Management with 1.15 trillion won in capital. Korea Finance Corp. is a government-run bank taking over the operations of KDB, providing low-interest policy loans to industrial companies and major SOC projects tied to government policies.
The new bank is capitalized at 3 trillion won with assets totaling 28 trillion won and a string of affiliates including the Korea Electric Power Corp., the Korea Expressway Corp., and Korea Water Resources Corp., altogether 12 government-run companies. It also has 15 private companies undergoing workouts including Hyundai Construction, Hynix Semiconductor and other private firms.
Chairman Min Euoo-sung of KDB Holding, said the KDB Financial Group envisions itself as a leading corporate investment bank in the world, representing Korea, and it will keep open its plans for M&As to expand its operational base. Financial sources expect the new IB will try to take over the Korea Exchange Bank and insurance firms in the near future to expand its financial reach.
They said KDB Holding would take advantage of the synergy created among its affiliates including Daewoo Securities, KDB, KDB Capital and KDB Asset Management to achieve its goal of being counted among the 20 largest IBs in the world by 2020.
The new financial group will try to set up its operations in China and India and make them solid before moving into advanced countries like the United States and those in Europe, according to the operational strategies envisioned by Chairman Min.
The plan also includes the schedule of the new holding company’s IPO in 2011 in consultation with the government and listing its shares on overseas stock exchanges the following year. The moves would advance the date for the firm’s privatization, earlier than 2014 as stipulated in the Korea Development Bank Law.
The five-man board of directors is made up of Chairman Min, Vice President Yoon Min-ho, two registered directors, Vice Chairman Kim Kwang-soo of the Daejoo Accounting Firm, Chairman Baek Ho-ki of the Baek Fine Investment Consultancy and Vice Chairman Kim Dae-shik of the Korea Management Academic Society, three of them outside directors.
President Yoo Jae-han of the Korea Finance Corp. said the state-run financial company will find new ways to provide concessional loans to expand social infrastructure, foster SMEs to develop regional economies, stabilize the financial market and find new growth engines, among others. He said the role of providing policy loans that has been played by the Korea Development Bank to this point has been found to be no longer compatible with the new economic trends. He said he will find ways to make the new financial entity play a central role in the national economy.
The new development bank has taken over stakes of government-financed companies worth 15.1 trillion won, bringing its total assets to 28 trillion won. Chairman Chin Dong-soo of the Financial Services Commission said in his congratulatory speech at the launching ceremony on Oct. 28 that he expects the official finance corporation to be a strong pillar that the national economy cannot do without during financial crises and it will further develop policy loan provisions that have been taken care of by the KDB.
The new development loan company would not have to worry about funding, as it will get paid for its 100 percent stake in KDB from KDB Holding. The government will have the new development loan company to finance the SOC projects that need large funds that private investors can’t handle. The company will also take over long-term bonds that private financial companies cannot handle to support the green industries or other new growth engines, along with the role of providing emergency stabilization funds to the financial market.
The Financial Services Commission will see if the government-run financial companies’ operations are redundant, especially with the Industrial Bank of Korea and the Korea Credit Guarantee Fund.
The KDB, which has played the role of development bank to build a base of growth for the national economy since it was set up 55 years ago following the end of the Korean War, has been dissolved. The bank provided concessionary loans to focus on the rapid development of the nation’s export industries, opening the age of industrialization in Korea. nw

Chairman Min Euoo-sung of KDB Financial Holding Co. waves the flag of the newly created company.