Korean shipping lenders need a cash injection or could face collapse

Korean shipping lenders need a cash injection or could face collapse

South Korea’s ministry of finance is considering ways of increasing the capital of state-run lenders Korea Development Bank (KDB) and the Export-Import Bank of Korea (Korea Eximbank) in order to help them restructure some of the country’s debt-ridden carriers and shipyards, reports say.

The two banks are financing the restructuring of Hanjin Shipping, Hyundai Merchant Marine (HMM) and Daewoo Shipbuilding and Marine Engineering (DSME) among other companies.

Finance Minister Yoo Il-ho said there are “many ways” of increasing the lenders’ capital without revising the Bank of Korea (BOK) Law, which allows the central bank to mint money in certain circumstances, the Korea Times reports. So far, the BOK has been reluctant to inject further money into the two state-run banks.

“The Korea Eximbank is in a very difficult situation. There is no choice but to support the bank because its collapse will affect the economy badly,” Lee Jong-woo, head of IBK Securities’ research centre, told the Korean newspaper. “In principle, it is right not to support the bank, but not all principles can be applied to the reality.”

On Tuesday, Yim Jong-yong, chairman of South Korea’s financial services commission, urged the finance ministry to take action in assisting the two banks. President Park Geun-hye has echoed this, encouraging the BOK to introduce Korean-style quantitative easing, and recommending the central bank take a more active role in the corporate restructuring by buying the KDB’s bonds directly.

The KDB is a lender to embattled carriers Hanjin Shipping and Hyundai Merchant Marine, both of which have racked up billions of dollars in debt. The amount of KDB’s non-performing loans (NPLs) has grown by KRW5.6trn ($4.9bn) over the past three years, according to a report published in March.

As a result, the KDB’s NPL ratio increased from 1.76% to 5.68% between March 2013 and December last year. Korea Eximbank’s NPL ratio rose from 0.6% to 3.24% during the same period.

Korea Eximbank has a large exposure to shipyards, including Sungdong Shipbuilding and Marine Engineering, which has resulted in the bank’s loss of capital. Its net profits more than halved in 2015 compared to 2014.

 

Holly Birkett

Holly is Splash's Online Editor and correspondent for the UK and Mediterranean. She has been a maritime journalist since 2010, and has written for and edited several trade publications. She is currently studying for membership of the Institute of Chartered Shipbrokers. In 2013, Holly won the Seahorse Club's Social Media Journalist of the Year award. She is currently based in London.

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