Korean banks face huge losses from bailing out local shipping industry

Korean banks face huge losses from bailing out local shipping industry

The overextended state of South Korean shipping and shipbuilding is pushing state-run banks to breaking point.

The vast swathe of non-performing loans (NPLs) handed out to maritime firms on the peninsula are burning a serious hole in big banking units including Korea Development Bank (KDB) and the Export-Import Bank of Korea (Korea Exim Bank). Disposing of the loans can only be done at a loss, and may harm restructuring of a number of lines and yards.

The amount of KDB’s NPLs, which is the main creditor bank of Daewoo Shipbuilding & Marine Engineering, Hyundai Merchant Marine and Hanjin Shipping, soared by KRW5.6trn over the past three years, according to BusinessKorea. As a result, its NPL ratio skyrocketed from 1.76% to 5.68% between March 2013 and December last year. That of the Export-Import Bank of Korea, the main creditor bank of SPP Shipbuilding and Sungdong Shipbuilding & Marine Engineering, rose from 0.6% to 3.24% during the same period.

Seoul’s Financial Supervisory Service is encouraging the banks, the KDB in particular, to dispose of their NPLs, even at a loss. The knock on effect for the local shipping and shipbuilding scene could be dramatic.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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