South Korea’s state-run Export-Import Bank of Korea (Korea Eximbank) is expected to be the first beneficiary of the government’s special fund designed to help recapitalization of state lenders, as the bank’s financial health will likely deteriorate further following its possible additional fund injections into ailing local shipbuilders.
The Eximbank with its Bank for International Settlement (BIS) capital adequacy ratio falling to 11.15 percent, the lowest among local banks, as of the end of last year is expected to receive support of around 2 trillion won ($1.8 billion) from the government’s fund.
“Korea Eximbank has to provide fresh loans to Daewoo Shipbuilding & Marine Engineering (DSME) with KDB and another shipbuilder Sungdong Shipbuilding & Marine Engineering Co. in which the bank holds the largest stake is also in need of help due to dearth of orders,” said a senior official from the government on Wednesday. “We need to help the bank as the further deterioration of its BIS ratio caused by the exposure to the troubled shipbuilders would disrupt the nation’s financial market.”
The bank’s BIS would drop to below 10 percent due to the additional funds to DSME and the shipbuilder’s downgraded asset soundness, the industry observers warned.
The government and Bank of Korea (BOK) created the recapitalization fund last year to supplement the nation’s two major state lenders, Korea Development Bank (KDB) and Korea Eximbank, who are in need of funds to support cash-strapped shippers and shipbuilders. The government planned to raise 11 trillion won by having the Korea Asset management Corp. (KAMCO) create a special purpose vehicle, where the central bank will provide 10 trillion won in special loans, and Industrial Bank of Korea purchase KAMCO subordinated securities worth 1 trillion won.
Through a workout program for DSME, its creditors would have to provide new loans of 3 trillion won and the Eximbank should cover around 1.5 trillion won, half of the fund. On top of that, it may also have to offer loans to Sungdong Shipbuilding in addition to its total 3 trillion won support over the last eight years.
DSME recorded losses over the past four consecutive years. The shipbuilder announced in a regulatory filing on Wednesday that it posted 2.71 trillion won in net loss, 1.61 trillion won in operating loss and 12.74 trillion won in sales last year.
By Cho Si-young and Chung Seok-woo
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