Korea Exim Bank sees fiscal soundness falling

The Export-Import Bank of Korea, a major state-run financial institution, is showing deterioration in its fiscal soundness.

According to the Financial Supervisory Service (FSS) on Wednesday, the bank’s BIS capital adequacy ratio posted 9.44 percent as of September, the lowest among the nation’s 17 banks. It is the only bank to slip below 10 percent, the standard recommended by the financial watchdog.

The BIS ratio refers to the percentage of capital to risk-weighted debt, which is a global indicator of a financial institution’s soundness.

If the ratio drops below 8 percent, the FSS orders institutions to take corrective measures and get more funds.

The bank’s low BIS ratio stems from increasing amount of bad debts at major shipbuilding companies such as Daewoo Shipbuilding & Marine Engineering and Sungdong Shipbuilding & Marine Engineering, of which the bank is the main creditor. The companies’ souring bonds have been calculated into the bank’s total assets, lowering the ratio.

The Korean currency’s depreciation against the U.S. dollar has also contributed to raising the bank’s risky assets.

Despite the external reasons, many in the financial industry criticize the bank’s lax management. By law, the government can raise capital for the bank if necessary using taxpayer money, but its critics aren’t enthusiastic, accusing the bank of remaining complacent about managing its fiscal soundness.

“The bank has not been strict with its lending, and it didn’t manage clients thoroughly, inviting such a crisis,” said Oh Jung-gun, professor at Konkuk University.

Meanwhile, the Investment Bank of Korea, another government-run bank, showed a relatively low BIS ratio of 12.65 percent, the FSS showed.

Commercial banks showed higher ratios than the public financial institutions. Citibank Korea posted the highest ratio of 16.76 percent among banks, while KB Kookmin Bank posted 16.14 percent.

The total capital ratio of domestic banks at the end of September was 13.9 percent, down from 14 percent three months earlier.

The fall in the total ratio mostly resulted from a growth in risk-weighted assets exceeding an increase in total capital, the watchdog said. Compared to three months ago, the total capital rose 2.7 percent due to net income and recapitalization efforts by banks, while risk-weighted assets expanded 3.7 percent. Increases in won-denominated loans and the weaker won against the dollar also contributed to the growth in risk-weighted assets.

BY SONG SU-HYUN, LEE TAE-KYUNG [song.suhyun@joongang.co.kr]