S. Korea set to merge state-run bank KDB with policy lender

SEOUL, Aug. 19 (Yonhap) -- The government is considering merging state-run Korea Development Bank (KDB) with a policy lender following four years of separate operations in a sign of thwarted privatization of the bank, sources said Monday.

KDB Financial Group was created as the holding company for KDB and four other units in October 2009 since the government of former President Lee Myung-bak had pushed to privatize the lender. Korea Finance Corp. (KoFC) was also set up to serve as a policy lender focusing on support to smaller firms.

But backpedaling on the previous government's decision, the current administration of President Park Geun-hye is planning to reshape the policy lender scheme by reuniting KDB with KoFC in four years, sources said.

As part of such efforts, the Financial Services Commission (FSC), the financial regulator, may announce detailed plans for the KDB merger later this month including a break-up of KDB Financial Group, they added.

The sale of KDB was an ambitious policy project pushed by the previous government as part of its broad plans to privatize public institutions.

By law, the government, which holds a 100 percent stake of KDB Financial Group, should start to reduce its stake in the group no later than May 2014 to put it in private hands. But the sales process, including plans for the group's initial public offerings, hit a snag amid unfavorable market conditions and opposition from lawmakers.

Experts said that the FSC's move for the KDB merger is enough to draw criticism as the country's policy on the financial sector faces flip-flops whenever a government changes. The FSC was set up in March 2008 under former President Lee.

Industry watchers said that the merger is feared to reduce the bank's leeway in extending loans to companies in need as the move will likely drive down KDB's capital adequacy ratio.

KDB reported a 32.6 percent on-year fall in net profit to 952.2 billion won (US$856.5 million) last year. Its total assets stood at 143 trillion won as of end-2012, up 11.8 percent from a year ago.

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