Financial Services Commission compensates San-eun with 2 trillion won loss... National Assembly urges "Operate budget efficiently" (Comprehensive)

Financial Services Commission to Invest 1.8817 Trillion Won in KDB through Supplementary and Main Budgets
Execution Performance at Half... Investment Calculated Based on 'Total Supply Scale'
Budget Policy Office: "Investment Should Follow Execution Performance After Program Ends"
Financial Authorities: "Budgeting Unavoidable to Secure Stable Policy Capacity"

[Asia Economy Reporter Song Seung-seop] It has been confirmed that the Financial Services Commission allocated a budget close to 2 trillion won to KDB Industrial Bank under the name of loss compensation. Despite the fact that KDB Industrial Bank did not even spend half of the budget raised last year to support companies affected by COVID-19, there are criticisms that excessive public funds are being injected. In particular, as COVID-19 cases rapidly spread and the situation worsens, voices are emerging that a review is needed regarding the COVID-19 related budget allocated to KDB Industrial Bank by the Financial Services Commission.

According to the National Assembly Budget Office and financial circles on the 12th, the Financial Services Commission invested 1.8817 trillion won in KDB Industrial Bank through the third supplementary budget last year and the main budget this year. This was to prevent the decline of the Bank for International Settlements (BIS) ratio and to compensate for losses.

The Financial Services Commission has been operating the ‘COVID-19 Livelihood and Financial Stability Package Program’ since the emergency economic meeting in March last year. The scale is 175 trillion won plus alpha, used for supporting small business owners and SMEs, stabilizing financial markets, and the period industry stabilization fund. KDB Industrial Bank is participating by investing 19.9 trillion won.

The Budget Office has put a brake on the Financial Services Commission’s investment scale. It pointed out that KDB Industrial Bank’s execution performance of the financial market stabilization program was poor, and the investment amount was calculated based on target figures. The Budget Office’s view is that it would not be too late to invest after reviewing how much money was ultimately spent after the program ends.

Last year, the execution rate of the ‘COVID-19 Livelihood and Financial Stability Package Program’ carried out by KDB Industrial Bank was only about 45.9%. Although a total of 16.9 trillion won was planned to be spent, only 7.76 trillion won was supported. Among the nine related programs, more than half?five programs?had an execution rate below 30%. The Cha-an Fund had 30%, and corporate bond refinancing support was 22.3%. The Securities Market Stabilization Fund (Securities Fund) was only 2%. This is why there were criticisms that KDB Industrial Bank, which was allocated a budget by financial authorities to support companies affected by COVID-19, was neglecting support for those companies.

Among the livelihood programs, 548.76 billion won was invested to compensate for the decline in the Bank for International Settlements (BIS) ratio caused by the Securities Fund and the Bond Market Stabilization Fund (Cha-an Fund). The investment amount was calculated based on targets, not execution rates. In the case of the Securities Fund, 20 billion won was executed, but the investment calculation was based on the total supply scale of 2 trillion won. For the Cha-an Fund, the supply scale of KDB Industrial Bank (4 trillion won) used for investment calculation was much larger than the execution performance (600 billion won).

There were also issues raised that investments should have been made based on execution performance after the program ended. Loans to small and medium-sized enterprises are limited by the exhaustion of the limit, and the rapid underwriting system for corporate bonds ends next year. The Budget Office expressed the view that the business plan for responding to COVID-19 was insufficient and that a review was necessary.

The Financial Services Commission stated that the poor execution rate was inevitable. The Securities Fund’s investment guideline aims to maintain the KOSPI at 1500 points. Since the KOSPI rose continuously, it was difficult for the Securities Fund to be executed. They explained that other programs also saw decreased or dispersed demand due to similar support policy implementations. Regarding the background of making investments before the program ended, they conveyed the opinion that budget allocation was unavoidable to secure stable policy capacity, and some investments might have rather caused market instability.

Yoon Chang-hyun, a member of the Political Affairs Committee from the People Power Party, emphasized, "It has been confirmed that policy financial institutions are only enthusiastic about receiving budgets and neglect evaluation and feedback on execution performance," and added, "Support programs scattered around should be systematically managed to establish a performance-oriented budget system."

The operation of the Special Purpose Vehicle (SPV) for purchasing non-investment grade corporate bonds and commercial papers (CP) was also criticized. The SPV is a program where the government, the Bank of Korea, and KDB Industrial Bank purchase low credit rating corporate bonds or short-term bonds. It was established to supply liquidity by purchasing bonds of companies facing difficulties in fundraising. The total scale is 10 trillion won, with KDB Industrial Bank sharing 1 trillion won invested through the government and 1 trillion won injected as subordinated loans.

The SPV purchases bonds by rating, and as of May, among the 3.3781 trillion won of bond purchases, investment-grade bond purchases amounted to 1.06 trillion won (31.4%). This is the result of setting the initial purchase ratio of investment-grade bonds at 30% by rating.

KDB Industrial Bank stated that it set appropriate purchase ratios by credit rating through consultations with related organizations to manage SPV portfolio risk and ensure stable operation.

The National Assembly Budget Office suggested, "Investment-grade companies can also be supported through the Cha-an Fund," and proposed, "The Financial Services Commission and KDB Industrial Bank need to reduce the proportion of investment-grade bond purchases within the scope of minimizing SPV risk in the future."

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