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Exim Bank chief downplays woes over financial health

All News 16:09 January 25, 2016

SEOUL, Jan. 25 (Yonhap) -- The chief of South Korea's state-run trade bank played down growing concerns over the lender's financial soundness Monday, claiming a recent fall in its capital adequacy ratio is a necessary and inevitable result of state policies aimed at boosting economic growth.

The Export-Import Bank of Korea (Exim Bank) has been under criticism the bank is trapped in moral hazard after the government injected over 1.1 trillion won (US$921 million) in fresh funds last year.

"The most difficult issue while working at a state-run bank that supports monetary policies is that the bank's fiscal soundness is measured by the same criteria for commercial banks," Exim Bank President Lee Duk-hoon said in a meeting with reporters.

Despite additional funds, the bank's so-called BIS capital adequacy ratio dropped to an estimated 10.11 percent as of the end of last year, compared with 10.50 percent at the end of 2014. The ratio measures the proportion of a bank's capital to its risk-weight credit while the Switzerland-based Bank for International Settlements (BIS) advises lenders to maintain a ratio of 8 percent or higher.

The lender's ratio is expected to further decline to as low as 10.09 percent this year.

Lee insisted such a drop would mean little, especially to a policy bank, which he said is designed to take losses unlike other profit-making commercial banks.

"A policy bank is designed to venture to new areas that have never been explored before in order to create new growth engines and fill in any gaps or losses in case of a corporate restructuring that will have a large economic impact," he said.

"The BIS ratio offers a guideline for commercial banks to keep their capital at a certain level so they will not go bankrupt when conditions deteriorate while seeking profits, but for policy banks, the ratio usually only offers reference data," Lee added.

Similarly, Lee argued a recent rise in the bank's non-performing loans (NPL) ratio was an inevitable choice to help the country's troubled shipbuilding and construction industries.

"The increase in the NPL ratio was due to a rise in non-performing loans from small and medium-sized shipyards and overseas construction projects since 2010, and the bank had no choice but to endure the loss as a collapse of such firms would have had an enormous impact on the economy," he said.

As of the end of last year, the bank's NPL ratio came to 2.17 percent, up from 2.02 percent the previous year and 1.51 percent in 2013.

Still, the bank chief vowed efforts to improve the bank's fiscal soundness, noting its annual net profit breached the 1 trillion won (US$840 million) mark for the first time in 2015.

Efforts to further increase the bank's profit may involve lowering costs, as well as raising interest rates, he added.

The Exim Bank, meanwhile, said it will extend 75 trillion won in policy loans this year, down from 80 trillion won a year earlier.

bdk@yna.co.kr
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