Two state-run banks to supply 2 tln won to bolster facility investment

SEOUL, Aug. 16 (Yonhap) -- Two South Korean state-run lenders will provide a
combined 2 trillion won (US$1.61 billion) in facilities funds starting in
September to help private-sector companies running low on cash, the financial
watchdog said Sunday.
The Korea Development Bank (KDB) and the Industrial Bank of Korea (IBK) plan to
set up a fund with 1.4 trillion won and 600 billion won, respectively, in an
effort to encourage local companies to increase capital spending, the Financial
Services Commission (FSC) said.
The money is part of a proposed state-led 5 trillion won fund aimed at boosting
facility investment by the private sector. The government aims to increase the
size of the fund to 10 trillion won within this year and eventually to 20
trillion won.
"The financial supply of the two lenders would provide impetus to facility
investment, thereby helping the Korean economy recover," Choo Kyung-ho,
director-general at the financial policy bureau of the FSC, told a press
conference.
The watchdog said the funds will be used to buy shares or bonds owned by
private-sector companies in currencies they need for facility investment. KDB
will focus on large-scale or higher-risk investments, while the IBK will seek to
support cash-strapped but promising smaller companies, it said.
The banks also will provide funds together to private equity funds with plans to
invest in areas that spur corporate capital spending, the watchdog added.
South Korea's facility investment has sharply declined, as many companies were
reluctant to make new capital spending due to lingering economic uncertainties.
According to the Bank of Korea, the country's facility investment tumbled 20
percent in the first half from a year ago. For all of this year, it predicted a
decline of 15.1 percent.
Despite some signs of improvements in the economy, policymakers remain cautious,
saying that it is premature to say the Korean economy is on a full recovery path,
as the private sector has yet to recover on its own.
Asia's fourth-largest economy grew 2.3 percent in the second quarter from three
months earlier, on massive government fiscal spending after rising 0.1 percent
on-quarter in the January-March period. The Korean economy is likely to contract
1.6 percent in 2009, according to the BOK.
sooyeon@yna.co.kr
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