Posted Date: April 19, 2021
MARC has affirmed its financial institution (FI) rating of AAA on The Export-Import Bank of Korea (KEXIM) and its issue rating of AAA on KEXIM’s Medium-Term Notes programme of RM1.0 billion. The FI and issue ratings are based on the domestic rating scale. The outlook on the ratings 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. 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.
For 1H2020, KEXIM recorded 15.3% y-o-y growth on its loan book to KRW85.1 trillion. This was mainly attributable to KEXIM’s countercyclical role 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. For full year 2020, KEXIM’s loan growth is projected to remain high with 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.
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.
KEXIM’s Common Equity Tier 1 (CET1) and total capital ratios 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 the bank’s position, if needed. KEXIM’s funding and liquidity profile remains healthy given its good access to international debt markets. Currently, there is no outstanding amount under the rated programme which will expire in February 2022.