There are concerns that the remaining legal capital limit of the Korea Development Bank is only 1 trillion won, which could pose problems for its policy financing support function. The bank must provide urgent policy financing support to industries such as the automobile sector, which is inevitably impacted by U.S. tariffs. However, there is little remaining in the legal capital limit. Increasing the legal capital requires amending the Korea Development Bank Act, but the ongoing impeachment of the president and the early presidential election have raised the possibility of discussions being delayed until the second half of the year.
According to the financial sector on the 9th, the Korea Development Bank held a board meeting on the 27th of last month and approved a capital increase through the issuance of new shares amounting to 155.5 billion won. The government holds 100% of the equity in the Korea Development Bank, so it will acquire the new shares through a cash contribution. The issuance of new shares by the bank is to expand its capital and secure funds to perform its policy financing role. The bank noted that the capital increase aims to support the creation of an innovation growth fund and special programs for semiconductor equipment investment.
Earlier, the Korea Development Bank also carried out a capital increase through the issuance of new shares amounting to 65 billion won in February. With the two capital increases, the bank's capital will rise to 26.5365 trillion won. The government has decided to inject 2 trillion won into the Korea Development Bank this year, bringing the capital to nearly 29 trillion won. This means that 95% of the legal capital of 30 trillion won will have been consumed. The legal capital is the maximum capital limit set by law, and without legal amendments, the Korea Development Bank cannot raise its capital above 30 trillion won.
If the legal capital is not expanded, the Korea Development Bank will struggle to smoothly perform its policy financing support function for industrial development. The bank plans to support 100 trillion won for advanced strategic industries such as semiconductors over three years, and the establishment of a 50 trillion won fund for advanced strategic industries to support sectors like future vehicles and batteries that are facing a competitive crisis due to U.S. tariffs is also urgent. The bank's loan and guarantee capacity is directly linked to its capital, and if capital increases by 20 to 30 trillion won from the current level, an additional support of 200 to 300 trillion won will be possible.
A capital increase is also necessary to improve capital soundness. As of the end of December last year, the Korea Development Bank's capital ratio as per the Bank for International Settlements (BIS) was 13.90%, down 0.46 percentage points from the previous quarter (14.36%). If the BIS ratio drops, funding costs will rise, reducing the bank's funding supply capability. Previously, Kang Seok-hoon, chairman of the Korea Development Bank, explained that "if the BIS ratio decreases by 0.07%, the funding supply capability will decrease by about 1.8 trillion won."
However, the proposed amendment to the Korea Development Bank Act for increasing the bank's legal capital has not passed through the gates of the National Assembly. The National Assembly's Political Affairs Committee presented the amendment on February 20 as an agenda item for the first subcommittee on bill review, but discussions have not taken place as it was overshadowed by multiple contentious bills, including amendments to the Capital Markets Act. The ongoing impeachment of the president and the transition into a phase of early presidential elections have further complicated the passing of the bill. A National Assembly official noted, "It seems that the amendment for expanding the legal capital will only be possible under the next government, indicating that it is unlikely to occur in the first half of this year, but may happen as early as the second half."