SEOUL: The Korean government decided to inject 300 billion won (US$270.68 million) of taxpayer money to support the Export-Import Bank of Korea (Korea EximBank), which currently struggles with its financial soundness, on June 24. As companies that have taken loans or credit approvals by the bank, including Moneual and Keangnam Enterprises, have entered court receivership or filed for bankruptcy, the government decided to take on this burden due to a relapse in its financial conditions of the bank.
An official from financial authorities said, “The government-run policy financial institutions can function properly only when Korea EximBank has a strong financial background. There is a consensus within the government that the bank needs to increase its Bank for International Settlements [BIS] capital ratio to at least 11.25 percent, which is at the level of 2009, by next year.”
Accordingly, the government has made an appropriation of 300 billion won (US$270.68 million) for the Korea EximBank investment from next year’s budget expenditure plan of the Ministry of Strategy and Finance, and is discussing it with the relevant authorities. Such investments are as much as a 650 percent rise from 40 billion won (US$36.09 million) of this year’s investment budget.
Korea EximBank’s financial soundness is strikingly deteriorating. According to a report titled “The 2014 Fiscal Year’s Final Evaluation of Public Institutions’” by the National Assembly Budget Office on June 18, the bank’s BIS ratio as of the end of last year stood at 10.50 percent, a 0.28 percent point decrease from 10.78 percent in 2010.
The figure was much lower than those of other state-run banks such as Korea Development Bank (KDB) with 13.67 percent, and Industrial Bank of Korea (IBK) with 12.39 percent. In particular, it is worse than those of other commercial banks in terms of financial stability. The average BIS ratio of commercial banks increased from 14.63 percent in 2010 to 14.88 percent, a 0.25 percent point increase, showing the improvement in soundness.
The bank’s financial soundness is weakening since it is extending loan support to restructuring companies and seeing the rapid growth in insolvent obligations in the shipbuilding industry. According to data released by Rep. Park Won-suk, a lawmaker of the minority Justice Party, the state-run policy bank is now at the risk of losing up to 1.3 trillion won (US$1.17 billion) over the past four years due to its loan-borrowers having gone out of business. Among them, industry observers predict that only 400 billion won (US$360.91 million) or so may be recollected.
In addition, as Basel III Regulatory Capital, which greatly increases the risk weight on the equity securities of each bank, will be introduced next year, Korea EximBank now desperately needs additional capital, since it has a high rate of bad loans.
