Exclusive Gyeonggi Province Funnels 'Approximately 16.4 Billion Won Annually' in Profits to NH Nonghyup Bank

Gyeonggi Province has been found to be funneling approximately 16.4 billion won in annual interest to NH Nonghyup Bank by raising 460 billion won in local bonds through the province's bank, NH Nonghyup Bank, instead of through public offerings.

According to materials submitted by the province to Rep. Kim Han-seul (People Power Party, proportional representation) on the 19th, the province issued 460 billion won in local bonds through financial institution bonds on December 26 last year.

The local bonds were issued through NH Nonghyup Bank, the province's bank. The maturity date is December 2035.

The applied interest rate is a floating 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, and when applied to 460 billion won, the annual interest comes to 16.468 billion won.

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

In particular, the local bond shows differences in fundraising methods compared to local bonds issued by the province before and after.

In February last year, the province issued 209.9 billion won in local bonds using a public offering method with participation from 12 securities firms. In March of the same year, 273.1 billion won also involved participation from 9 securities firms.

This year, in February, the province raised 298.5 billion won from 13 securities firms, and in May, 197.8 billion won from 9 securities firms, each through public offering methods.

The province explained that it recruits local bond investors from securities firms through platforms such as eDaily and Yonhap Infomax.

However, the 460 billion won issued in December last year was entirely raised from NH Nonghyup Bank, the province's bank, through financial institution bonds without going through such recruitment procedures.

As a result, the bank managing the province's funds became both the lender providing 460 billion won to the province and the creditor receiving interest.

If the 3.58% annual rate at the time of issuance is simply applied, the interest paid to NH Nonghyup is 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 the benchmark rate rises in the future, both the interest the province must pay and the interest NH Nonghyup receives could increase. Conversely, if the rate falls, the interest amount also decreases.

The province says public offerings were difficult due to the special circumstances of the issuance timing at year-end.

A provincial official stated, "Securities firms usually exhaust and close their annual investment funds around mid-December," and "At that time, the province's budget approval timing was not yet confirmed."

The official added, "The fact that approximately one week is needed from initiating a public offering to actual fund raising was also considered," and "In a situation where it was difficult to predict the timing of budget approval, we had to complete local bond issuance by year-end, so we chose to raise funds through financial institutions."