[Q&A] Vice Minister of Economy and Finance: "SPV, Possibility of Central Bank Credit Risk Transfer Remains Open"

Exclusion from the Industrial Stability Fund... "It's too early to talk about specific companies"

"Considering including 'Green New Deal' in the Korean New Deal"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Kim Yongbeom, the 1st Vice Minister of the Ministry of Economy and Finance, said on the 20th, "I do not think there is a high possibility of credit risk being transferred to the central bank, but the possibility is open."

After announcing the '4th Regular Briefing of the Economic Central Countermeasures Headquarters Meeting' at the Government Seoul Office on the 20th, Vice Minister Kim said, "Basically, the structure is such that the government and policy banks can absorb credit risk up to about 20%." The SPV organization is based on 1 trillion won of government capital contribution, with the Korea Development Bank contributing 1 trillion won and providing 1 trillion won in subordinated loans. The Bank of Korea is responsible for 8 trillion won in senior loans.

He added, "Looking at it by rating, there are not that many corporate bonds or CPs with low investment grades," and "I think it will be a sufficient amount to overcome the financial market freeze."

Below is a Q&A with Vice Minister Kim.

▲ Why was the purchase range set at BBB?

=This SPV is considering including fallen angels, thinking around BB grade. This time, it is planned to include not only high-grade CP but also non-prime CP. However, the SPV Operating Committee will review an appropriate portfolio composition to prevent the SPV risk from becoming excessively large.

▲ Is there a possibility that Ssangyong Motor and others will be included as exceptions to the Period Industry Stabilization Fund?

=It is too early to say whether specific companies can be supported regarding the Period Industry Stabilization Fund. Seven experts will review, listen to the bond management team, and the deliberation committee will decide.

▲ Who is responsible for managing the SPV?

=The SPV will be established at the Korea Development Bank. Although KDB is the capital contribution organization, the Bank of Korea will also participate as a key member of the operating committee and express opinions. Based on 10 trillion won, there is 1 trillion won of government capital contribution and subordinated loans from KDB, a policy bank. Basically, the government and policy banks absorb credit risk up to 20%. The possibility of credit risk transferring to the central bank is not high, but the possibility is open.

▲ Does the government bear the initial losses?

=The 1 trillion won loss is ultimately fiscal because the government has already provided the capital contribution funds to KDB. The entity bearing the credit risk is the government.

▲ What is the plan announced today and how is it related to the Korean New Deal? Is the Green New Deal included in the Korean New Deal?

=We are reviewing including the Green New Deal in the Korean New Deal. Regardless of the relationship with the Korean New Deal, the Green New Deal is one of the development strategies to respond to climate change and create large-scale jobs as a leading country in the post-COVID era.

This content was produced with the assistance of AI translation services.