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. The FI and issue ratings are based on the domestic rating scale. The ratings outlook is stable.
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 based on KEXIM’s status as a government-owned and controlled policy bank and the government’s legal obligation under the KEXIM Act to ensure the bank’s solvency.
KEXIM’s loan book mix continued to reflect its strategic role as the country’s official export credit agency mandated to provide loans and guarantees to support South Korean companies conducting business overseas. Export credit accounted for 53.4% of total loans as at end-June 2019, followed by overseas investment credit at 31.8% and import credit at 6.2%. Over that period, KEXIM’s loan book grew by a marginal 1.0% y-o-y to KRW73.8 trillion, on the back of a slight recovery in the shipbuilding industry. Any further improvement in the industry – which may be driven by growing demand for liquefied natural gas (LNG) vessels arising from increased environmental awareness in the industry – could support KEXIM’s loan growth going forward.
Non-performing loans (NPL) which have been on a broadly declining trend due to write-offs in the shipbuilding sector, will be pressured by a prolonged trade dispute with Japan and recent health concerns amid the coronavirus (COVID-19) outbreak, which are likely to weigh on external trade performance. KEXIM’s NPL ratio stood at 1.5% as at end-June 2019 (2018: 1.4%). KEXIM also continues to exhibit fairly large credit exposures – its top five borrowers, of which three are shipbuilders, accounted for 9.8% of total credit exposure.
KEXIM’s Common Equity Tier 1 (CET1) and total capital ratios stood at 12.8% and 14.4% as at end-June 2019 (2018: 12.7%; 14.4%). MARC draws comfort from the South Korean government’s continued capital support to the bank. In 1H2019 it provided KRW26.2 billion worth of capital injections, and in 2020 KEXIM expects over KRW180 billion in capital support and funding from the government. KEXIM’s funding and liquidity profile remains healthy and is supported by its access to international debt capital markets. Currently, there is no outstanding amount under the rated programme.