Korean banks hit hard by shipbuilding woes

After South Korea launched a KRW 11 trillion (USD 9.5 billion) worth fund for state-run banks, the country’s lenders could need more help to absorb the enormous shipbuilding losses, Bloomberg reported.

According to data provided by Bloomberg, ten of South Korea’s shipbuilders have together accumulated a debt of some USD 38.2 billion.

As the country’s major shipbuilding and shipping companies embark on restructuring, the banks are forced to push the maturity of a number of unprofitable loans.

The banks targeted by South Korea’s fund, which is expected to be operational by end of 2017, are Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM).

However, the shipbuilders might not be the only ones to blame for the situation, as the country’s Board of Audit and Inspection yesterday released a report saying that Korea Development Bank and KEXIM also played a role in increasing the debts, the Korea Economic Daily reported.

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Namely, KDB, the main creditor of the financially troubled Daewoo Shipbuilding & Marine Engineering (DSME), reportedly failed to conduct proper inspections on DSME’s management, which contributed to an accounting fraud in the amount of some KRW 1.5 trillion (USD 1.28 billion) during the 2013-2014 period.

Furthermore, KEXIM permitted Sungdong Shipbuilding to sign agreements on below-cost orders, crossing the legal limit, thereby delaying the company’s financial recovery.

The country’s Big Three shipbuilders, Hyundai Heavy Industries (HHI), Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries (SHI), have all launched self-rescue plans that include massive asset sales and workforce cuts.

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As a result, the government expects a 30 percent workforce drop in the shipbuilding industry by 2018 from 2015 once the restructuring process is completed. In addition, it is anticipated that the country’s shipbuilding capacity will be reduced by 20 percent. 

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