South Korea rolled out measures aimed at redirecting bank funds from property lending to critical industries including semiconductors and artificial intelligence (AI).
The so-called “productive finance” initiative lowers the regulatory burden on banks’ equity investments while tightening capital requirements for mortgage lending. The risk weight for banks’ equity investments will fall to 250 percent from 400 percent, while the floor for mortgage loan risk weights will rise to 20 percent from 15 percent. The new rules are set to take effect in the first quarter of next year.
The government also plans to encourage long-term asset investment by insurers, with changes to capital rules under the Korea Insurance Capital Standard to be detailed in October. Large securities firms will be allowed to issue promissory notes and operate integrated management accounts, though a portion of funds raised must be deployed as risk capital.
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South Korean policymakers have long argued that excessive capital has been funneled into the real estate market, locking up financial resources that might otherwise fuel more dynamic sectors of the economy. They warn that the concentration of wealth in property has come at the expense of critical areas such as technology, manufacturing, and small business investment, leaving the broader economy vulnerable and slowing innovation.
By redirecting lending away from speculative housing and toward more productive industries, officials aim to strike a better balance and stimulate sustainable growth.
In a move to broaden financing channels for smaller companies, Seoul will introduce security token offerings. It also pledged to publish a roadmap to achieve inclusion in MSCI Inc’s developed-market index.
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As part of the strategy, authorities outlined details of a previously announced 150 trillion won ($110 billion) fund to nurture high-tech industries. The fund will draw 75 trillion won from the government, with the rest coming from private, public and financial institutions. At least 30 trillion won will be earmarked for artificial intelligence and 20.9 trillion won for semiconductor development.
