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.