Exclusive Gyeonggi Province Channels Over 16.4 Billion Won in Annual Interest to NH Nonghyup

Gyeonggi Province has been confirmed to have raised 460 billion won from NH Nonghyup Bank, which serves as the province's treasury bank, instead of through a public offering when issuing local bonds, thereby channeling approximately 16.4 billion won in annual interest to Nonghyup.

According to materials submitted to Gyeonggi Province by Provincial Councilor Kim Han-seul (People Power Party, Proportional Representative) on the 19th, the province issued 460 billion won in local bonds on December 26 last year through a financial institution bond method.

The sole issuer was NH Nonghyup Bank, which serves as the provincial treasury bank. The maturity date is December 2035.

The applied interest rate is a variable rate method that adds 0.67 percentage points to the 3-month Certificates of Deposit (CD) rate. At the time of issuance, the rate was 3.58% annually, which when applied to 460 billion won results in annual interest of 16.468 billion won.

However, since it is a variable rate, Nonghyup does not receive a fixed 16.4 billion won annually. As the benchmark rate changes every three months, both the province's actual interest burden and Nonghyup's interest income also fluctuate.

In particular, this local bond differs from local bonds issued by the province before and after in its method of fund procurement.

The province issued 209.9 billion won in local bonds in February last year through a public offering method with participation from 12 securities companies. For the 273.1 billion won issued in March of the same year, 9 securities companies participated.

Since the beginning of this year, the province raised 298.5 billion won from 13 securities companies in February through the public offering method, and 197.8 billion won from 9 securities companies in May, respectively.

The province explained that it recruits local bond investors from securities companies through platforms such as E-Daily and Yonhap Infomax.

However, the 460 billion won issued in December last year did not go through this recruitment process and was instead fully procured from Nonghyup, the provincial treasury bank, through the financial institution bond method.

As a result, the treasury bank that manages the province's funds simultaneously lent 460 billion won to the province and became a creditor receiving interest.

When the rate of 3.58% annually at the time of issuance is simply applied, the interest paid to Nonghyup amounts to approximately 16.468 billion won per year. In particular, since the local bond is linked to the 3-month CD rate until its maturity in December 2035, if benchmark rates rise in the future, both the interest the province must pay and the interest Nonghyup receives could increase. Conversely, if rates fall, the interest amount also decreases.

The province takes the position that a public offering was difficult due to the special timing of the issuance at year-end.

A provincial official stated, "Securities companies typically exhaust their annual investment funds and close around mid-December," and "At that time, the timing of the province's budget passage had not been confirmed either."

The official added, "The fact that a public offering requires approximately one week for actual fund procurement was also taken into consideration," and explained, "In a situation where it was difficult to predict the timing of budget passage, we had to complete the local bond issuance by year-end, so we chose to procure funds through a financial institution."