President Choi Jong-ku of Seoul Guarantee Inc. has been selected to succeed Lee Duk-hoon as the chairman and president of Export and Import Bank, who is set to retire on May 5 as his term expires.
The former Assistant Minister of the International Finance Bureau at the Ministry of Strategy and Finance, Choi officially takes over the position when Prime Minster Hwang Kyo-ahn gives his approval on May 6. New CEO, Choi, said he will separate credit-worthy borrowers like stones from jewels when providing loans to the business firms. Shipbuilders and shipping firms in particular have had liquidity problems when it comes to getting loans to keep their operations going. Private financial institutions have avoided giving them loans. Choi said he will provide project financing and development-type and other financial assistance to bail them out.
Eximbank, for the first time in its history, suffered a 1 trillion won deficit last year. Choi said there are cycles in banking operations and a turnaround will come so that banks can recover their profits.
The head of Eximbank also said he will see that the bank dishes out loans to business firms to help them get ready for the 4th Industrial Revolution. He will also see that financial assistance is provided to the financially poor firms to go for M&As so that they can keep the lights on.
The Export-Import Bank of Korea was established with the aim to facilitate the development of Korea's economy and enhance economic cooperation with foreign countries through the provision of financial support for export and import transactions, overseas projects, and the development of overseas natural resources.
Moody's Investors Service has affirmed the ratings of the Export-Import Bank of Korea. The outlook is stable.
At the same time, Moody's has withdrawn Eximbank’s ba2 baseline credit assessment (BCA). Eximbank's ratings, which are equalized with the government of Korea's Aa2 rating, were affirmed based on Act 37 of the Eximbank Act, that holds the government responsible for the bank's solvency; the government's 100 percent ownership of the bank; the absence of legal barriers to timely support; and Eximbank’s close affiliation with the government, given the bank's status as a government-controlled policy bank.
The withdrawal of Eximbank’s ba2 BCA reflects Moody's view that extraordinary support is near certain, rendering changes to its financial metrics irrelevant in assessing the credit risks for its bondholders.
This view is based on Moody's assessment that Eximbank’s public policy mandate to support Korea's export-import sectors aligns Eximbank’s interest with that of the government; the government exerts direct influence on Eximbank’s operations through the appointment of board members and management; and finances are intertwined with those of the government, with the government providing frequent capital injections to Eximbank.
Moody's has also taken into consideration the fact that Eximbank is not regulated as a bank, as well as the Korean government's institutional strength and fiscal strength, which are viewed as very high.
The government's support for Eximbank was reiterated earlier this month through two announced capital injections for Eximbank. On June 3, 2016, the Korea Development Bank injected 500 billion won in capital into Eximbank in the form of shares in Korea Aerospace Industries, Ltd (unrated). This exercise is estimated to improve KEXIM's Tier 1 ratio by about 40 basis points.
On June 8, 2016, the government announced Restructuring Plan for Shipping & Shipbuilding Industries and Measures for Recapitalization of Policy Banks.
The plan includes capital injections for Eximbank to be included in the government's 2017 budget; 1 trillion won of capital to be injected into Eximbank by September 2016; and a 11 trillion won recapitalization fund which Eximbank and KDB can call on, as needed.
The fund will be financed with 10 trillion won in loans from the Bank of Korea and 1 trillion won in subordinated loans from Korea Asset Management Corporation.
The fund will purchase future contingent convertible bonds issued by Eximbank and KDB, which will be issued in local currency.
The government also committed to maintaining Eximbank’s capital adequacy ratio at a minimum of 10.5 percent and the Bank of Korea may inject capital directly into Eximbank if this becomes necessary.
The ongoing capital injections will support Eximbank’s capitalization, which weakened in recent years due to the bank's sizable exposure to the shipbuilding sector and the protracted restructuring of large shipbuilders. As of March 2016, its Tier 1 capital ratio was 8.8 percent.
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