The Korea Development Bank (KDB) effectively induced commercial banks to take losses by setting interest rates on loans for Samsung Electronics' Pyeongtaek semiconductor plant (P5) at the mid-3 percent range, it has emerged. While KDB can be viewed as fulfilling its role as a policy finance institution even when incurring reverse margins, concerns are mounting that commercial banks may pass on the burden to shareholders and customers.
According to the financial industry Thursday, KDB capped the lending rate below the mid-3 percent range on a 500 billion won loan in which the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup — each participated with 100 billion won, as part of a 2.5 trillion won financing package for Samsung Electronics (005930.KS) in February this year. The 2 trillion won loan that KDB agreed to shoulder was reportedly priced at the late-2 percent to low-3 percent range, in line with Korean treasury bond yields at the time.
The lending rate commercial banks offered to Samsung Electronics was 0.5 to 0.6 percentage points below the market rate at the time. According to the Bank of Korea's Economic Statistics System, the average lending rate for large corporations in February stood at 4.13 percent. While KDB can raise funds at low cost by issuing Advanced Strategic Industry Fund Bonds at treasury yield levels, commercial banks face relatively higher funding costs, creating a structure in which reverse margins are inevitable.
Critics argue that unilaterally controlling lending rates without considering the differing nature of KDB as a policy finance institution and commercial banks as for-profit enterprises runs counter to market logic. "With KDB directly setting the rates, commercial banks are extending loans at a loss," a deputy president of a commercial bank said. "It amounts to lending money at a reverse margin to Samsung Electronics, a top-tier blue-chip company."
Commercial banks cannot refuse KDB's demands because KDB holds the initiative on productive finance. For commercial banks that need to deliver productive finance results, there is little choice but to prioritize participation in major projects led by KDB. This is because each financial company has different standards for productive finance, industry sectors, and performance recognition, making it essential to secure definitive track records. In addition to the Samsung Electronics loan, KDB is also investing in the Shinan Uui offshore wind project and artificial intelligence (AI) chipmaker Rebellions.
Observers expect that if KDB continues to control rates as it expands venture capital investment going forward, the scale of reverse margins will grow. That is because risk premiums for small and medium-sized enterprises — which are smaller than Samsung Electronics — may not be adequately reflected. It also remains uncertain whether commercial banks, which have high foreign shareholder ratios and face mounting pressure for shareholder returns, can continue participating in businesses that generate reverse margins.
"In a situation where commercial banks also need to produce productive finance results, it's a structure where participation is only possible if KDB lets you in," a financial industry official said. "If you fall out of favor with KDB even slightly, you can be kicked out of productive finance projects, so we have no choice but to do as we're told."
