Policy and Private Finance '170 Trillion+ α' New Deal Focused Investment... Some Raise Concerns of 'Government Control'

Policy Financial Institutions 100 Trillion, Financial Groups 70 Trillion, etc.
Comprehensive Support for On-Lending Loans, Investments, and Guarantees

President Moon Jae-in (Photo by Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] At the '1st Korean New Deal Strategy Meeting' held at the Blue House on the 3rd, presided over by President Moon Jae-in, the 'Support Plan for Revitalizing New Deal Finance,' involving both policy and private financial institutions, also took shape. The core of the plan is to concentrate 170 trillion won in related sectors over the next five years. Of this, about 70 trillion won will be borne by major financial groups. Some voices are warning of the possibility that the policy could be distorted into a form of government-controlled finance that mobilizes and pressures financial companies.

According to the support plan announced by the Financial Services Commission on the same day, financial authorities will simultaneously promote a significant expansion of funding support not only for New Deal projects and New Deal infrastructure but also for related upstream and downstream companies and industries. Accordingly, policy financial institutions such as KDB Industrial Bank and Korea Eximbank have agreed to raise the proportion of funds supplied to the New Deal sector from about 8% last year to around 12% by the end of 2025.

In line with this direction, the plan is to supply about 100 trillion won to New Deal companies through low-interest loans, investments, and guarantees. A special on-lending program will also be utilized for loans. On-lending refers to an indirect lending system where the government lends money to banks for the purpose of supporting companies, and the banks execute loans after going through their screening systems. This targets small and medium-sized enterprises and mid-sized companies that are not yet creditworthy but are judged to have high growth potential.

In the private sector, the five major financial groups?Shinhan Financial, KB Kookmin Financial, Hana Financial, Woori Financial, and NH Nonghyup Financial?will lead the supply. These financial groups have already established plans to supply about 70 trillion won through investments and loans to New Deal projects and related upstream and downstream companies by 2025.

Shinhan Financial has decided to supply at least 28.5 trillion won based on the 'Shinhan N.E.O Project,' while Hana Financial and Woori Financial also plan to supply 10 trillion won each based on internal projects and dedicated organizations such as the 'Korean New Deal Finance Project' and the 'New Deal Finance Support Committee.' KB Financial plans to supply 9 trillion won over five years centered on the 'KB New Deal and Innovation Finance Council,' and NH Nonghyup Financial intends to supply 8 trillion won over five years in fields such as renewable energy and smart farms through the 'Green Finance Business Group.'

The financial sector generally agrees on the justification and necessity of the Korean New Deal project centered on the 'Financial New Deal.' A senior official from a financial group participating in this project said, "In a situation where traditional operations centered on interest income have limitations, if there is an alternative, wouldn't it be digital innovation and new business areas based on it?" adding, "It is true that the New Deal project is attracting attention as a promising alternative."

However, there are also concerns. Another senior financial official said, "The financial sector is already bearing a considerable role and pressure related to various financial supports for COVID-19, including extensions of loan maturities and additional interest payment deferrals," and predicted, "A situation could arise where both financial authorities and the financial sector fall into a dilemma due to soundness issues."

"Financial Sector Burden Increasing Amid Already Severe Pressure"
Financial Authorities "Supporting with Regulatory Relaxation"

There is also a view that if the government intervenes by attempting to direct traffic in a specific direction while 'encouraging' the financial sector's fund supply, both the meaning and effectiveness of fund supply could be undermined. A financial sector official pointed out, "The government must not neglect efforts to maximize the creativity and autonomy of the private sector and to prevent controversies such as 'government-controlled funds' that have arisen around New Deal funds."

The financial authorities appear to be trying to somewhat dispel concerns from the financial sector by using regulatory relaxation measures related to financial supply in the New Deal sector. For example, they plan to ease financial companies' soundness regulations on New Deal exposure by applying relatively low Basel Committee on Banking Supervision (BIS) risk weights to New Deal project financing (PF) investments where the public sector shares risks, and also allow the expansion of credit extensions in the New Deal sector by mega investment banks (IBs).

A financial authority official explained, "We plan to continuously review reasonable adjustments to detailed regulatory matters during the project implementation process."

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