South Korea’s State-Run Banks To Increase Scrutiny Before Providing Financial Support To Korean Companies With Large-Scale Overseas Construction Projects
The South Korean government announced Tuesday that the country's financial institutions will examine the profitability of companies with large-scale construction projects overseas before providing them with financial support.
Korea Joongang Daily forecasted on Nov. 11 that the measure aims to avoid another bankruptcy scandal akin at Daewoo Shipbuilding & Marine Engineering (DSME).
According to reports, a closed-door meeting chaired by Finance Minister Choi Kyung Hwan that was held in Seoul Tuesday was reportedly attended by officials from state-run banks in South Korea, such as the Export-Import Bank of Korea (Eximbank), Korea Development Bank and Korea Trade Insurance Corporation.
Further reports have revealed that the officials talked about methods on how to build up evaluations of projects overseas.
The South Korean finance minister reportedly emphasized that providing financial support to unprofitable overseas projects might result to severe bankruptcy at government-controlled banks.
"Keep in mind that deterioration in the fiscal soundness of state-run financial institutions would ultimately become a burden on the people," Choi said.
Meanwhile, Yonhap News Agency reported that high-level officials reportedly said during the meeting that undue contest to secure bids have corroded profitability, leading to the winners losing capital sooner or later.
Choi suggested financial institutions need to prevent companies from signing agreements that can lead to unprofitability.
"Money losing projects can put pressure on financial institutions and if lenders are seriously hurt, this can be a burden for the economy as a whole," he said. "There is a need to fundamentally tackle this problem."
On the other hand, a number of financial institutions have already announced their plans for obligatory inspection on the profitability of large-scale projects by supporting the function of Korea Consulting Center for Overseas Infra & Plant Projects and the Maritime Finance Center.
Aside from that, Eximbank, KBD and K-Sure reportedly reached an agreement to share information on large-scale projects won by South Korean companies.