The Korean government expanded the National Growth Fund from 150 trillion won to 200 trillion won during a presidential briefing last week, increasing annual supply from 30 trillion won to 40 trillion won over five years. The Financial Services Commission confirmed that direct equity investment will grow from 15 trillion won to 25 trillion won, but has not disclosed how the remaining 40 trillion won increase will be distributed among indirect investment, infrastructure financing, and ultra-low interest loans. The allocation question has become a focal point for the banking sector, as the Korea Development Bank currently bears the reverse margin burden for the existing 50 trillion won ultra-low interest loan program at government bond interest rate levels.
Financial Services Commission Increases Direct Equity Investment to 25 Trillion Won
The Financial Services Commission specified that direct equity investment will increase from 15 trillion won to 25 trillion won. The original 150 trillion won National Growth Fund structure allocated 75 trillion won to the Advanced Strategic Industry Fund and 75 trillion won to private and public funds. The support method breakdown included 15 trillion won for direct investment, 35 trillion won for indirect investment, 50 trillion won for infrastructure investment and financing, and 50 trillion won for ultra-low interest loans.
The distribution structure directly affects the banking sector's resource allocation. If the existing half-and-half ratio is maintained, private financial institutions must reassess their contribution capacity and risk-weighted asset allocation for the additional allocation.
Korea Development Bank Bears Reverse Margin on Ultra-Low Interest Loans
The existing 50 trillion won ultra-low interest loan program is entirely handled by the Advanced Strategic Industry Fund. The Korea Development Bank supplies funds at government bond interest rate levels while accepting reverse margins.
Commercial banks participate partially in this program. Banks structured ultra-low interest loan conditions to minimize reverse margins for Samsung Electronics and Naver. In the Samsung Electronics case, the Korea Development Bank and commercial bank tranches had different applied interest rates. LG Display is being discussed as a recipient of low-interest loans in the second mega-project.
A banking sector official stated, "The original intention of ultra-low interest loans was for the Korea Development Bank to supply all 50 trillion won at government bond interest rate levels. While it is recognized as National Growth Fund performance, there is little incentive to participate while accepting such conditions, which is why ultra-low interest loans have not gained traction."
Without private sector participation, expanding only the ultra-low interest loan portion would increase the Korea Development Bank's burden. This leads to increased issuance of Advanced Strategic Industry Fund bonds. In the first half of this year, the scale of ultra-low interest loans remained insufficient, making it difficult to achieve clear performance results in terms of execution.
Banking Sector Favors Infrastructure Investment for Semiconductor Clusters
Banks view increasing infrastructure investment and financing in the private sector as appropriate. Samsung Electronics and SK Hynix recently announced large-scale domestic semiconductor investment plans in succession, creating inevitable financial demand for power plants, water supply, and other infrastructure needed for industrial complex development.
The Korea Development Bank, the executing entity, has not yet grasped the detailed allocation plan from authorities. The market observes that the allocation outline will emerge during next year's budget compilation process.
A banking sector official said, "Financial authorities need to provide direction so each institution can respond to the increase. We are developing scenarios with the view that increasing infrastructure investment and financing for new semiconductor clusters would be more appropriate in the private sector than ultra-low interest loans."
FAQ
What did the Korean government announce about the National Growth Fund last week?
The government expanded the National Growth Fund from 150 trillion won to 200 trillion won during a presidential briefing last week, increasing annual supply from 30 trillion won to 40 trillion won over five years.
How is the original 150 trillion won National Growth Fund allocated?
The original fund is split equally between the Advanced Strategic Industry Fund (75 trillion won) and private/public funds (75 trillion won), with support methods including 15 trillion won for direct investment, 35 trillion won for indirect investment, 50 trillion won for infrastructure investment and financing, and 50 trillion won for ultra-low interest loans.
Why do commercial banks have limited participation in ultra-low interest loans?
Banks face reverse margin burdens because ultra-low interest loans are supplied at government bond interest rate levels, providing little incentive to participate while accepting such conditions, according to banking sector officials.
