... establishing acts of South Korea's three key policy banks ¡ KDB, KEXIM and IBK ¡ oblige Korea's government to absorb the banks' net losses not covered by their respective reserves. Fitch Ratings sees this as an effective solvency guarantee, as it makes the government legally liable for keeping the policy banks' balance sheets solvent. Reserves Act as Unconsolidated Buffers: A policy bank's reserve is the loss-absorption buffer before the government's loss-absorption obligation kicks in. It consists of retained earnings and capital surplus, two key equity account items designed to absorb losses under Korea's prevailing bank accounting framework. The reserve is on a standalone basis; subsidiaries are not technically covered by the solvency guarantee, but may still be supported to the extent of their significance to their respective parents and the government. Reserve Balance Stabilising: The reserves of KDB (KRW3.8 trillion at end-2016) and...
