The Export-Import Bank of Korea - 2010

MARC has affirmed the ratings of AAA and AAAID assigned to The Export-Import Bank of Korea’s (KEXIM) conventional and Islamic Medium Term Notes Programmes with a combined nominal value of RM3.0 billion. The ratings reflect KEXIM’s public policy role in supporting the Republic of Korea’s (Korea) export and import industries, strong standalone financial profile and its full government ownership. The ratings also receive an uplift from the high likelihood of support from the Korean government. MARC opines that support from the Korean government will continue in view of KEXIM’s important role in supporting the growth of Korea’s export-oriented economy and the Korean government’s significant capacity to provide liquidity or capital support. The outlook on the ratings remains stable.

KEXIM is a specialised bank mandated with the role of an export credit agency (ECA) to support Korean international trade transactions. The bank’s activities mainly comprise export credit, overseas investment projects as well as provision of guarantees. As witnessed during the global financial crisis, KEXIM, in common with other ECAs, played a critical role in keeping trade flows open. KEXIM maintained its momentum of financing for Korean exporters with double-digit loan growth in FY2009 and the first six months of FY2010. KEXIM’s policy role remains robust post financial crisis given the importance of exports in sustaining and supporting Korea’s economic growth. The bank widened its role in FY2009 to support exporting small- to medium-sized enterprises with high growth potential. In addition, the bank has also increased its support to green growth industries as well as natural resources development. Under the Export-Import Bank of Korea Act, the Korean government has an obligation to ensure KEXIM’s ongoing solvency. Accordingly, the government has injected a total of KRW1.85 trillion (approximately RM5.0 billion) from 2008 to 1H2010 to strengthen the bank’s capital structure.  

KEXIM’s standalone credit quality is underpinned by its relatively healthy capital structure (with total capital ratio of 11.3% as at end-FY2009), modest profitability and sound asset quality. Although the bank’s gross NPL ratio has weakened to 1.13% at end-FY2009 from 0.62% at end-FY2008, it still remained modest and below the Korean banking sector average. That said, the bank’s financial performance weakened in FY2009 amidst the unfavourable economic environment with return on assets (ROA) declining to 0.07% in FY2009 from 0.32% in FY2008. The weaker results were mainly attributed to net interest margin compression stemming from higher funding costs and lower lending rates, and high credit costs. The financial results subsequently rebounded in 1HFY2010 with annualised ROA improving to 0.25% on the back of an improvement in interest margins.

Being an export credit agency, KEXIM’s loan portfolio is geographically well diversified with credit exposures extended across the world. Currency and interest rate risks arising from the loan portfolio have thus far been well managed through the use of derivatives. Moreover, the higher concentration risk on the manufacturing and shipbuilding sector credit exposures is somewhat mitigated by the sound credit profiles of the borrowers comprising strong and established Korean corporations.

The stable outlook on KEXIM’s ratings reflects the stable outlook for the Korean economy, which is gradually recovering from the effect of the global economic downturn, as well as MARC’s expectation that the bank’s economic and strategic importance for the Korean government will remain intact over the medium term.

Major Rating Factors

Strengths