Gov’t mulls a capital increase of over $1BN for KDB

[Photo by MK DB]

The South Korean government is considering increasing the Korea Development Bank (KDB)’s capital by about 1.5 trillion won ($1.08 billion) to bolster financial support for chips and other advanced industries, as the competition among major economies for subsidies and tax credits to lure chip manufacturers escalates.

The Financial Services Commission is leading discussions for the KDB capital increase, according to government and financial industry sources on Wednesday. The increase would be in the form of government investment and enhance support for companies investing in chip facilities. “The government recognizes the necessity of supporting advanced industries such as semiconductors, and this capital increase for KDB is an option that we are considering,” a senior government official said.

While the United States and Japan offer tax benefits and subsidies to attract companies and production facilities in advanced sectors, Korea currently does not offer incentives except tax deductions under the special tax law for investments in advanced industries. As it is not feasible to introduce subsidies immediately, the government will likely lean towards expanding loans to such companies via policy-based financial institutions.

If the government injects 1.5 trillion won into the KDB, it could expand loans and guarantees to core industrial companies, which in turn could stimulate corporate investment. KDB‘s capital adequacy ratio stood at 13.70 percent at the end of 2023 according to the Bank for International Settlements (BIS), and with the additional 1.5 trillion won capital increase following the government’s 2 trillion won contribution to Korea Land and Housing Corporation (LH) in March 2024, the capital adequacy ratio is expected to exceed 14 percent. “With the 1.5 trillion won government contribution, loans of around 13 to 14 trillion won can be made,” a senior KDB official said.

Due to Korea’s lack of a subsidy system, industry players also view policy financial institutions as the most viable option for now. Their attention is now squarely on the national fiscal strategy meeting taking place during the following week, where they hope to discuss the capital increase and other support measures for advanced industry players.