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KDB seeks to bolster capital as KEPCO's deficit grows

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Korea Development Bank headquarters in downtown Seoul / Korea Times file
Korea Development Bank headquarters in downtown Seoul / Korea Times file

By Lee Yeon-woo

Korean Development Bank (KDB) is seeking to bolster its capital base in order to improve its financial stability, which has been faltering primarily due to the growing deficit of the Korea Electric Power Corp. (KEPCO) in which the bank holds a 32.9 percent stake.

According to the KDB on Sunday, the bank is planning to hold an extraordinary shareholders' meeting on Thursday to decide on the issuance of new stocks. They are expected to be worth around 120 billion won ($89.28 million), but the exact amount is still under consideration, a bank official told The Korea Times.

"The cash investment we are planning this time is part of this year's budget, which was approved by the National Assembly for government policy projects such as the innovative growth fund," KDB noted in its statement.

The decision comes as the bank is making concerted efforts to boost its Bank for International Settlements (BIS) ratio.

According to Rep. Kim Hee-gon of the ruling People Power Party, KDB's BIS ratio stood at 13.08 percent at end of the March, which is lower than the 13.4 percent recorded at the end of last year. Financial authorities recommend that banks maintain a BIS ratio of at least 13 percent to ensure financial soundness.

To manage the ratio, the bank issued subordinated bonds worth 800 billion won in April. This helps to raise the BIS ratio as subordinated bonds can be recognized as part of the bank's capital.

The government also invested into the bank its shares in Korea Land & Housing Corporation (LH), which were worth 565 billion won, at the end of last year, and another 400 billion won in March last year.

Despite such efforts, it's challenging for the bank to maintain its BIS ratio higher than 13 percent given KEPCO's ongoing deficit. Under current regulations, KEPCO's deficit also impacts the performance of KDB, which holds a 32.9 percent stake in the electric utility company.

KEPCO recorded a deficit of 32.6 trillion won last year alone and has already recorded an operating loss of more than 6 trillion won for the first quarter of this year.

Some market observers have suggested that the bank might struggle to provide policy finance loans to corporations. However, the bank refuted the concern.

"KDB has raised its financing target to 73.5 trillion won this year, up from 70 trillion won last year. The bank is smoothly supplying industrial funds, focusing primarily on the country's strategic industries," KDB wrote in its statement. The bank added that it will make every effort to maintain its annual BIS ratio above 13 percent, and improve its financial soundness.

Lee Yeon-woo


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