Korea Export-Import (Exim) Bank is likely to take up all of the policy loans and government loans provided to cover overseas business activities with important decisions on those loans to be made by a financial policy council whose members are made up of government officials and heads of the banks that deal with policy loans, financial sources said recently.
Officials of the financial authorities said measures are being drawn up to bring all the policy loans provided to Korean overseas business operators under the management of the Exim Bank in an effort to make those loans more effective and to avoid redundancy and confusion among banks and customers.
A task force was formed in April and has been working on the guidelines given them by Chong Wa Dae, the presidential office, and top financial authorities including the Financial Services Commission (FSC). Rep. Choi Kyung-hwan, the floor leader for the ruling Saenuri Party, recently called for the reform of the laws on the Exim Bank and has submitted a proposal to the Strategy and Finance Committee of the National Assembly. The revision proposal includes changing the name of the Exim Bank to the International Cooperation Bank and providing it with expanded capital of 15 trillion won, no limit for its operation, and allowing it to compete with other banks.
The FSC was to announce the new government measures next month, but it could be made sooner since the task force has almost completed the guidelines for the new policy.
The guidelines include the turning over of all the policy loans to overseas businesses managed by Korean firms and individuals handled by other banks in Korea to the Exim Bank. The Exim Bank will take over trade insurance from the Korea Trade Insurance Cop. and external financing from the Korea Development Bank and the Korea Finance Corp. and those financial institutions will be reduced in size.
An official of the Exim Bank said making a bank responsible for all external policy loans has already been done in the United States and Japan and Korea, too, should tone down excessive competition among banks and make the operations more productive. A policy finance council to be established later will take charge of all domestic policy loans.
Chairman Kim Yong-hwan of Korea Eximbank
Initially, the task force tinkered with the issue of a merger of KDB and Korea Finance Corp. to set up a new policy loan bank, but of late, an idea of free and intensive competition among banks emerged to vitalize the domestic policy loan market. There are still some who argue for the merger of KDB and Korea Finance Corp. to handle domestic policy loans, especially among the concerned ministries including the Ministry of Strategy and Finance and the Ministry of Trade, Industry and Energy, while the Financial Services Commission, the key player in the move, has its own ideas.
An official of the financial authority said the KDB and Korea Finance Corp. were separated a mere four years ago and it would be awkward to reintegrate them. It is best, he said, to have a policy loan council to direct traffic between the two entities.
Large project financing will still be under KDB including the financing of large export projects such as nuclear power plants.
Those who argued for the integration of external policy financing under one bank include Rep. Choi Kyung-hwan, ruling party floor leader and a former minister of the Ministry of Commerce, Industry and Energy in the Lee Myung-bak government.
Rep. Choi said when he was in the government there were too many financial institutions handling policy loans, which caused confusion and redundancy, thus making them ineffective.
Some officials of the financial authority did not go for the change, saying that competition among banks makes domestic policy loans more effective and good for the borrowers, while control of overseas policy loans by a single financial institution is better for the borrowers, namely Korean corporate and individual borrowers, since they know where to go for the loan and who to contact if they have problems.
A bank to exclusively take charge of loans to shipbuilders is being studied, although it would encounter likely objections from the World Trade Organization due to protests from rival shipbuilding nations.