Mar 25, 2013 -
MARC has affirmed its debt
ratings of AAA/AAAID on The Export-Import Bank of Korea’s (KEXIM) conventional
and Islamic Medium Term Notes (MTN) Programmes with a combined nominal value of
RM3.0 billion and AAA on KEXIM’s RM1.0 billion MTN Programme. The outlook for
all the ratings is stable.
The ratings are sustained by the
strong implicit support of the South Korean government given KEXIM’s vital role
in supporting South Korea’s export sector and its economic importance as the
country’s official export credit agency (ECA), as well as the government’s
close supervision of the state-owned institution. The government has an
obligation under the KEXIM Act to cover any net loss that cannot be covered by
the bank’s reserves, has control over transfers of KEXIM’s income to reserves
and appoints its top management. The long-term ratings benefit from
support-driven rating uplift from KEXIM’s standalone creditworthiness which
MARC continues to assess as ‘very strong’. MARC uses South Korea’s national
scale foreign currency ceiling of AAA as the main underpinning factor of the
support uplift.
MARC’s country ceiling of ‘AAA’
is underpinned by the sovereign’s prudent financial management and policy
framework, sound fiscal position, and manageable external debt position. The
rating agency believes that the sovereign’s stability-oriented economic and
fiscal policies should boost Korea’s resilience to downside risks posed by an
extended period of weak global economic growth and exogenous shocks.
Importantly, the state has continued to demonstrate its commitment to the bank
through timely capital injections to support its lending to Korean exporters.
Created in 1976, KEXIM is a
public entity that is fully owned by the South Korean government; the
government holds a 67.06% direct equity stake in the bank as of end-June 2012.
KEXIM’s activities, which mainly comprise export credit, overseas investment
credit as well as provision of guarantees, are driven by the institution’s
mission to contribute to the growth of the national economy by promoting
international trade and investment. As with most ECAs, KEXIM provides
complementary capacity to enhance the competitiveness of Korean goods and
services in international markets.
The continuing significance of
KEXIM’s role as Korea’s official ECA is reflected in the continued expansion in
its loan portfolio during the first half of 2012 in which disbursements of
export credits, overseas investment credits and import credits rose by 40%, 57%
and 16% respectively from the corresponding period in 2011. Export credits
constitute KEXIM’s most significant lending activity at 58% of total loans at
end-June 2012. Apart from traditional ECA products, KEXIM also offers long
tenure overseas investment credits to finance overseas investments and projects
of Korean companies. Overseas investment credits have become an important
component of the bank’s policy-based operations, accounting for 35% of the
bank’s total loans as at end-June 2012. The main sectors are manufacturing and
natural resources.
The bank’s credit portfolio
remains fairly concentrated, with the top five credit exposures accounting for
22% of its total credit exposures (including guarantees) and over twice of its
shareholders’ equity. KEXIM’s export credits are concentrated in Asia at
around 83% of total outstanding loan credits as of end-June 2012. KEXIM’s focus
on financing the export of Korea’s capital goods such as ships, industrial
plants and high technology products gives rise to credit concentration in
sub-segments in the manufacturing and transportation industry sectors. MARC is
of the opinion that sector and single obligor concentration risks are somewhat
mitigated by the sound credit profiles of its borrowers comprising strong and
established Korean corporations, which include the country’s major
shipbuilders.
KEXIM has been successful in
keeping its non-performing loans (NPL) low, although 2009 and 2010 saw steady
increases, peaking at 1.2% of outstanding loans at year-end 2010 (excluding
guarantees). Since then, the bank's NPL ratio has been trending downwards,
declining to 0.8% as at end-June 2012 (December 2011: 1.0%), assisted by KRW158
billion of loan write-offs against loan loss reserves. NPLs dropped to KRW398
billion as of June 30, 2012, from KRW500 billion as at end-December 2011.
KEXIM’s NPLs are well provided for as indicated by a loan loss reserve cover of
499% as of June 30, 2012, up from 394% as of end-December 2011. KEXIM’s ability
to sustain its current asset quality metrics well into 2013 will be dependent on
the resilience of the Korean export sector’s performance.
KEXIM’s financial profile, in
particular its low core profitability, reflects its public policy function. The
ECA does not aim to maximise profits but strives to maintain an adequate level
of profitability to support internal capital generation to fund loan growth.
The bank posted a smaller net income of KRW234 billion for the nine months
ended September 30, 2012 (9M2012) compared to KRW331 billion for 9M2011, mostly
as a result of reduced dividend income and an increase in provisions for
possible loan losses due to the growth of its loan book. On a positive note,
the bank’s net interest income was KRW26 billion or 11% higher compared to
9M2011, in line with the increase in its outstanding loans.
The Korean government has
demonstrated a continuing high level of commitment to provide capital
injections in order to support KEXIM’s lending to Korean exporters. The
government contributed a total of KRW879 billion of new capital between May and
September 2012. As of June 30, 2012, the bank’s Tier 1 and total capital ratios
were 10.0% and 11.3% respectively, subsequent to which KEXIM’s paid-in capital
was increased to KRW7,138 billion as of September 30, 2012. MARC views the
demonstrated willingness of the Korean government to ensure that the bank
remains soundly capitalised relative to its risk profile as fundamental to
KEXIM’s continued access to international capital market funding and foreign
bank borrowings.
The stable outlook on KEXIM’s
ratings reflects MARC’s expectations that there will be no material
deterioration in the bank’s operating or credit profile, or change in the
capacity and willingness of the Korean government to support the bank in the
near to medium term.
Contacts:
Milly Leong, +603-2082 2288/ milly@marc.com.my;
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my
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