Samjong KPMG calls for private-capital ecosystem to make W1,560tr productive finance push work

South Korea needs to build an investment ecosystem capable of drawing in sustained private long-term capital if the government's plan to channel 1,560 trillion won ($1.17 trillion) into productive finance over the next five years is to succeed, according to a new analysis.

Samjong KPMG published a report titled "Redirecting the Flow of Capital: The Current State and Challenges of Productive Finance" on Wednesday, examining the progress of domestic productive finance initiatives and overseas cases, and laying out what financial institutions and policymakers must do to build a sustainable productive finance ecosystem.

The Financial Services Commission announced last September a five-year productive finance support plan for the domestic financial sector, totaling 1,560 trillion won — comprising 628 trillion won from private finance and 932 trillion won from policy finance. Major domestic financial holding companies, securities firms and insurers have since embedded productive finance into their core management strategies by establishing dedicated units, revamping key performance indicators and developing investment and lending programs.

The government also plans to expand direct and indirect investment and lending in advanced strategic industries — including AI, semiconductors, secondary batteries, vaccines and displays — through the National Growth Fund, which is set to reach 200 trillion won over the next five years.

Samjong KPMG said that as declining labor input from the low birth rate and aging population continues to weigh on South Korea's potential growth rate, the efficient allocation of capital has emerged as a central challenge for lifting the economy's growth potential. The firm said redirecting capital flows away from existing assets such as real estate and toward innovative industries and high-growth companies is becoming increasingly important, as is finance's role in spurring innovation.

However, the report cautioned against government-led capital supply becoming overly concentrated in specific strategic industries. It said there is a risk of a crowding-out effect that suppresses private investment, as well as capital herding across industries, overinvestment, duplicated investment and distortions in corporate valuations.

Productive finance involves areas with long investment-recovery periods and high business uncertainty. The report said building a long-term performance management framework that evaluates substantive economic outcomes — productivity gains, job creation, technological innovation and the attraction of private capital — matters more than simply measuring the volume of funds supplied.

The report also noted that innovative companies and new industries tend to lack collateral and carry higher credit risk than conventional borrowers, given their elevated business uncertainty. It said a risk-sharing framework is needed to activate investment without undermining the financial soundness and profitability of financial institutions. The report recommended strengthening specialized assessment capabilities that evaluate technology, business models, cash flows and growth potential, alongside post-investment performance management.

Overseas, a range of policies are being pursued to attract private long-term capital. Japan is encouraging households to shift savings into investments through the introduction of its individual savings account program, known as NISA, and corporate governance reforms. The United States relies on financial institutions to channel funding into strategic industries on a commercial basis. In the United Kingdom, pension funds and sovereign wealth funds supply long-term growth capital while the financial industry itself leads productive finance initiatives.

The report said the overseas cases demonstrate that the success or failure of productive finance hinges on building an investment ecosystem in which private long-term capital can assess and absorb the risks of innovative companies. It said policy should be designed so that policy finance serves as seed money for private investment, but that once an initial market has formed, the ecosystem transitions to one driven by private-sector investment.

At the institutional level, the report recommended that financial companies diversify their instruments — including equity investment, venture funds and policy finance linkages — and improve their key performance indicators and liability exemption frameworks to better reflect long-term investment performance rather than short-term earnings.

Kim Min-gyu, vice chairman and financial industry leader at Samjong KPMG, said Korea's productive finance model must evolve from government-led capital supply toward a self-sustaining, private-sector-driven financial ecosystem. "The key is building a virtuous cycle that runs from long-term risk assessment to identifying innovative companies, supporting their growth and scale-up, and then recovering and reinvesting capital," he said.

Meanwhile, Samjong KPMG posted sales of 905.6 billion won in its most recent fiscal year, from April 2025 to March 2026, up 3.4 percent from the previous year. Operating profit for the same period came to 900 million won.