Central bank agrees to new role

The Bank of Korea (BOK) on Friday approved the government’s grand plan to create a fund of up to 12 trillion won ($10.5 billion) amid controversy surrounding the central bank’s involvement in creating the astronomical amount of funds to support ongoing corporate restructuring.

The central bank also decided to adopt a capital call system, which will allow the government-run banks to ask for a portion of the money whenever they need it to help corporate restructuring at a monetary policy committee meeting held on Friday.

The BOK will run this new loan program, which will provide up to 10 trillion won, until the end of next year, and the loan period will be a year for every loan.

“We came up with the decision not to help troubled companies but to stabilize the financial market by supporting government-run banks to avoid running out of money,” said an official at the bank. “The plan is to minimize the negative impact on the financial markets and local economy coming from corporate restructuring. We will temporarily take a role of being a supporter of the plan as we also believe that the restructuring issue is very urgent.”

The bank added that it would announce further details such as interest rates and securities when the new program goes into effect.

The government said earlier last month that it would create a fund of up to 12 trillion won to finance restructuring of the shipbuilding and shipping industries.

The fund will allow the government to inject money into the industries’ main creditors - Korea Development Bank (KDB) and Export-Import Bank of Korea (Korea Eximbank) - without having to go through the National Assembly.

The central bank will provide up to 10 trillion won in the form of a loan to the Industrial Bank of Korea (IBK), which will be the conduit.

The capital provided to KDB and Korea Eximbank will be in the form of contingent convertible bonds issued by them and bought by IBK.

According to the government’s plan, the Korea Asset Management Corporation will give 1 trillion won in subordinated bonds to the two state-owned banks to supplement the money channeled through IBK.

Regarding the BOK’s involvement in the government’s grand plan, there are some lawmakers from both aisles criticizing the issuing authority of the BOK, saying funding should be done through a supplementary budget.

“The BOK has a right to resist following the government’s request, but it failed to do so too easily,” Lee Hye-hoon, a lawmaker from the Saenuri Party, said at the National Assembly’s Strategy and Finance Committee meeting held on Thursday.

Justice Party Chairman Shim Sang-jung said in a press release on Friday that it is the government’s role to deal with struggling companies, not the Bank of Korea’s.

She also complained that no one is trying to call main creditors to account for not properly managing loans to shipbuilding and shipping companies.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]