Export-Import Bank of Korea - 2008

MARC has assigned ratings of AAA & AAAID to The Export-Import Bank of Korea’s (KEXIM) Medium Term Notes Programmes for its conventional and Islamic issuances respectively, for a total combined nominal value of up to RM3.0 billion. The ratings reflect KEXIM’s strategic and public policy role in relation to the Republic of Korea’s (Korea) key export and import sectors, its government-owned entity status and unchanging ownership structure, as well as the explicit statutory support of the sovereign to maintain KEXIM’s solvency. The ratings also reflect an uplift above the bank’s standalone credit quality based on the high degree of implied and explicit support from the Korean government. MARC believes that KEXIM has assured access to financial support from the Korean government should the need arise on the basis of the continuing importance of the bank to the export-oriented Korean economy and the high growth trend of exports. The capacity of the Korean government to provide financial support is assessed to be extremely high, and is accordingly reflected in its assigned senior unsecured debt ratings. The ratings carry a stable outlook.

KEXIM is a specialized financial institution and its primary role is to finance export of Korea’s goods and services to international markets and related services such as the provision of credit guarantees to Korean exporters and importers. As a specialised policy bank, profit maximization is not a key objective in its operations. Nonetheless, since inception, KEXIM has remained moderately profitable and it has been managed in a prudent manner. Under the KEXIM Act, the Korean government is statutorily compelled to provide funds to cover the bank’s losses should the bank have insufficient funds. The government continues to demonstrate its willingness to provide voluntary regular capital support to KEXIM and it is expected to continue with the requisite capital support for KEXIM’s growing role. During the severe Asian financial crisis of 1998, KEXIM’s capital base was significantly increased by KRW920 billion by the government. Unlike the other two Korean policy banks, where the government had diluted or plans to dilute its ownership, the government has maintained its ownership in KEXIM. The foregoing highlights the extent to which the bank benefits from very strong support from the government in the context of its policy role and the remote probability of dilution in government ownership in the near to intermediate term.

KEXIM’s very strong standalone credit quality is underpinned by its low level of non-performing loans (NPL of 0.41% as at September 2007), maintenance of very high loan loss reserves with high provisioning levels (above 900% of total NPLs as at September 2007), adequate capitalization (CAR at 9.9% as at September 2007) and recurring though modest profitability. KEXIM’s loans and guarantees are well-diversified geographically, with credit exposures to Asia, Middle East, Europe and America. KEXIM’s export support for high value capital goods such as ships and manufacturing equipment produced by large corporations gives rise to a modest concentration of large loan exposures. The credit concentration risk arising from the large loan exposures is, however, adequately mitigated by the credit profile of borrowers which comprise strong, established and large Korean corporations such as Hyundai and Samsung with proven capabilities to produce high value capital goods.

The stable ratings outlook for KEXIM incorporates MARC’s expectation that the bank’s economic importance and close ties to the government of Korea remain unaltered in the medium term. KEXIM’s rating outlook is expected to remain aligned with the stable outlook on Korea which is supported by the strong competitiveness of the economy, continued good growth prospects driven by exports and investments, as well as conservative fiscal and monetary policies. Furthermore, MARC expects the bank to maintain its very strong standalone credit quality.

Major Rating Factors

Strengths

• Crucial and highly important role in financing the Republic of Korea’s (Korea) key export and import sectors;
• Very strong standalone credit profile;
• The bank has been consistently profitable since inception;
• Wholly government-owned policy bank;
• Demonstrated commitment and the propensity of the Korean government to provide capital support for the bank; and
• Well-recognised borrower in international markets.

Challenges

• Low profitability as a consequence of its public policy role as Korea’s official export-import agency; and
• Susceptibility of demand for export credits to a slowdown in global economic growth.