The South Korean government will recapitalize 700 billion won ($623.2 million) in two state-run lenders, Korea Development Bank (KDB) and Industrial Bank of Korea (IBK), next year to fund companies grappling with worsening domestic conditions.

According to the 2019 budget passed on Saturday, the Financial Services Commission, the country’s top financial policymaker, will set aside 500 billion for KDB until 2020. The fresh capital would be used to finance new ventures and normalize struggling businesses.

The government also earmarked 200 billion won in new capital for IBK next year in a newly-introduced bill to aid small merchants and boost growth in innovative sectors. The move is part of President Moon Jae-in’s push to extend credit to small and self-employed businesses, which have been hit the hardest amid the economic downturn.

The National Assembly Budget Office and the main opposition Liberty Korea Party had originally opposed the bill on the grounds that KDB would still be financially sound even after backing the restructuring plans of GM Korea and STX Offshore & Shipbuilding. They claimed that KDB’s BIS capital adequacy ratio, the minimum capital that banks must attain under international standards, would remain well above the government-required 13 percent even after injecting funds to keep the automaker and shipbuilder afloat.

Instead of increased funding, critics argued policy banks should try harder to retrieve public funds spent on corporate restructuring. From 2005 to 2017, KDB channeled a total of 5.56 trillion won into 28 companies to help rationalize their operations. As of late December 2017, it had only redeemed 3.63 trillion won.

By Lee Seung-yoon and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]