South Korea’s financial authorities are considering pumping money into two state banks with heavy exposure to loss-making local shipbuilders to help them maintain financial health, financial officials said Wednesday.
The country’s big three shipyards — Hyundai Heavy Industries Co., Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. — racked up a record 4.78 trillion won ($4.26 billion) in losses in the second quarter and their combined operating loss is estimated at 4.75 trillion won, also marking the largest-ever shortfall.
Daewoo Shipbuilding alone posted a record loss of 3 trillion won in the three-month period due mainly to a delay in the construction of overseas offshore facilities.
The heavy losses in the shipbuilding industry are feared to come as a big burden to creditor lenders as the Export-Import Bank of Korea extended 12.2 trillion won worth of loans to Daewoo Shipbuilding as of end-June, while the Korea Development Bank lent credits worth 4.2 trillion won to Daewoo.
“We are considering mapping out some measures, including investing money into the institutions, to restore their financial soundness,” said an official from the Financial Services Commission, South Korea’s top financial regulator, on condition of anonymity.
“Due to a series of corporate restructuring stemming from the protracted slump in the shipbuilding industry, the Exim Bank and KDB have suffered from a low capital adequacy ratio and delinquency rate.”
The Exim Bank’s capital adequacy ratio stood at 10.5 percent at the end of 2014, far below the market average of 14.88 percent. Its delinquency rate is 2.02 percent over the same period, higher than the average rate of 1.39 percent.
KDB’s capital ratio has been on a decline as it fell to 14.4 percent in 2014 from 17.58 in 2010. The lender lost 1.5 trillion won in bad loans as STX Offshore & Shipbuilding went bankrupt in 2013.
The FSC official said that the government’s financial support is needed to prop up the state lenders’ financial soundness when they extend additional loans to assist the ailing shipbuilders’ restructuring later this year.
The Seoul government injected 510 billion won into the Exim Bank last year and earmarked an additional 115 billion won for this year to help the lender make up for the losses. (Yonhap)