CREDIT ANALYSIS REPORT

THE EXPORT-IMPORT BANK OF KOREA (KEXIM) - 2021

Report ID 6053647 Popularity 92 views 9 downloads 
Report Date Apr 2021 Product  
Company / Issuer Export-Import Bank of Korea Sector Finance - Financial Institution
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed the financial institution (FI) rating of AAA on The Export-Import Bank of Korea (KEXIM) and the issue rating of AAA on its Medium-Term Notes programme of RM1.0 billion which is due to mature in February 2022. The FI and issue ratings are based on the domestic rating scale. The outlook on the ratings is stable.

Rationale     
The FI rating on KEXIM is equalised to the Republic of Korea’s (South Korea) AAA/stable rating from MARC, reflecting the rating agency’s view of a very high likelihood of timely support from the South Korean government. This view is based on the South Korean government’s legal obligation under the KEXIM Act to ensure the bank’s solvency. As a government-owned and controlled policy bank, it plays a key role in financing South Korea’s export sector. This was evident in July 2020 when the South Korean government injected additional capital of KRW578 billion to strengthen KEXIM’s capital position and to provide funding for KEXIM to extend loans to affected companies during the pandemic.

For 1H2020, KEXIM recorded higher y-o-y growth of 15.3% on its loan book to KRW85.1 trillion. This was mainly attributable to KEXIM’s countercyclical role during the pandemic where the bank offered new loans and guarantees to vulnerable sectors adversely impacted by the pandemic. In addition, the bank extended the maturity of existing loans. In general, the South Korean economy has remained fairly resilient, with real GDP contracting marginally by 1.0% (2019: real GDP growth of 2.0%), lower compared to many of its peers in the G20 countries.

For full year 2020, KEXIM’s loan growth is projected to remain high with the loan book mix continuing to reflect its mandated role as an export credit agency (ECA), providing loans and guarantees supporting South Korean companies conducting business overseas. As at end-June 2020, export credits accounted for 52.2% of total loans, followed by overseas investment credits at 34.8% and import credits which remain modest at 6.7%.

KEXIM’s overall credit metrics have remained healthy. The bank’s gross non-performing loans (NPL) decreased to KRW1.75 trillion for 1H2020 (1H2019: KRW2.05 trillion) resulting in KEXIM’s NPL ratio of 1.21% (1H2019: 1.53%). This was largely attributable to a policy of continued write-offs of loans. KEXIM has continued to exhibit large credit exposures with its top five borrowers constituting 16.4% of total credit exposure.

However, asset quality indicators could come under pressure given the challenging economic conditions amid a prevailing US-China trade war and the continued trade dispute with Japan. The bank’s underlying asset quality may be understated given the extension of loans targeted at Small Medium Enterprises (SMEs) since 1Q2020 and the actual asset quality issues would only be apparent post pandemic.

KEXIM’s Common Equity Tier 1 (CET1) and total capital ratio were lower at 11.8% and 13.5% (1H2019: 12.8% and 14.4%) due to the increase in risk-adjusted assets on the back of higher loan growth as well as lower retained earnings. MARC believes that the South Korean government will inject additional capital to strengthen its position if needed. The bank’s funding and liquidity profile remains healthy given its good access to international debt capital markets. Currently, there is no outstanding amount under the rated programme.

Rating outlook     
The stable outlook reflects MARC’s expectation of continued South Korean government support when required.

Rating trajectory

Downside scenario     
The rating will come under pressure in the unlikely event of an explicit decline in financial and/or operational support from the South Korean government. 

Key strengths
  • Wholly-owned state policy bank
  • Legal obligation of the South Korean government to provide capital support
  • Key role in financing South Korea’s export sector
Key risk 
  • Fairly high loan-book concentration in terms of credit exposures

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