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Fitch: Revised KDB Act Marks Economic Policy Shift in Korea
May 9, 2014 / 4:51 AM / in 4 years

Fitch: Revised KDB Act Marks Economic Policy Shift in Korea

(The following statement was released by the rating agency) SEOUL/SINGAPORE/HONG KONG, May 09 (Fitch) The passage of revisions to the Korea Development Bank Act by the National Assembly on 2 May re-affirms the government's commitment to restructure policy banks under new state ownership and supervision models, Fitch Ratings says. The new model mandates majority state ownership and reaffirms government solvency guarantees, in contrast with the previous administration's plans to fully privatise policy lenders - including KDB and the Industrial Bank of Korea (IBK). As a result, the quasi-sovereign status of both KDB and IBK has been confirmed - and, by extension, the equalisation of their IDRs with that of the sovereign at 'AA-'. The changes are part of a broader shift in Korean economic policy under President Park Geun-Hye, which includes elements of greater state engagement in targeted sectors - including troubled/failing large corporates, SMEs and highly leveraged state-owned enterprises and households. We do not view this as marking a fundamental change to Korea's fiscal discipline or robust policy framework - these being principal factors underpinning our view that the country is well-positioned from a sovereign and macroeconomic perspective. As the government reasserts its involvement in policy banks, it has also increased regulatory oversight to ensure that policy banks are run in a more cost-efficient way. The new legislation stipulates new supervisory powers for the Financial Services Commission over KDB, in addition to reaffirming majority state control (a minimum 51% state ownership in KDB is now mandated). Under the new act, the FSC gains direct disciplinary authority, and the bank must seek pre-approval of its annual budget and business plan. The revised KDB Act is scheduled to come into force in January 2015 upon the completion of the re-merger of KDB with its parent KDB Financial Group and fellow policy-lender Korea Financial Corporation. Contacts: Heakyu Chang Director Financial Institutions Fitch Ratings Korea 9F Kyobo Securities Building 26-4 Youido-Dong Youngdeungpo-Gu + 822 3278 8363 Justin Patrie Senior Director Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Korea Development Bank here Korea Finance Corporatihere Korea’s Policy Financial Institutions: Policy Functions Set to Increase to Support Economy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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