The Export-Import Bank of Korea (Korea Eximbank) has been adopting a variety of tools to help finance shipbuilding and other shipping projects. With the maritime industry showing signs of recovery after a years-long slump, the role of Korea Eximbank as an export credit agency (ECA) is getting bigger.

Eximbank CEO Kim Yong-hwan said Korean shipbuilders may receive more orders than expected this year as the shipping industry continues to bounce back.

“The cost of shipbuilding projects is growing, but the imbalance between demand and supply in ship financing continues as European banks have reduced their participation in such projects,” Kim said after hosting the Korea Ship Finance Conference in Seoul on Nov. 7 jointly with Marine Money, the world’s most highly recognized magazine for ship financing.

“Now ECAs, including Korea Eximbank, should promote ship financing by increasing direct loans and encouraging more diverse financial sources, so that they can lend a hand in the shipbuilding and shipping industries’ recovery,” he said

According to the state-run lender, 59 percent of new shipbuilding orders were placed at Asian shipyards including those in Korea, China and Japan, while well-known shipping companies placing the orders were based in America or Europe.

“In the past, European banks have played crucial roles in the ship financing market. However, due to the ongoing cascade effect of the global financial crisis, and the introduction of Basel III regulations, the proportion of European banks’ participation in the ship financing market has dropped from 82 percent in 2010 to 74 percent in 2012,” Kim said.

So, instead of bank loans, bond financing for example has become a core tool for ship financing, and in the course of the transition, the role of ECAs has become more important, the CEO said.

There are several kinds of ECA ship financing: in direct lending, ECAs offer loans to the ship owners directly; with financial guarantees, ECAs guarantee the repayment of loans offered by commercial banks; and in guaranteed bonds, ECAs guarantee the repayment of bonds which the ship owners issue and insurers or securities firms buy.

Korea Eximbank has been committing $3 billion in direct loans annually for the past three years, resulting in $10.6 billion in the buyers’ credit balance and $30.3 billion in a total ship financing balance.

However, the size of shipbuilding deals is getting larger, with the contract price for multiple vessels usually surpassing $1 billion. So it is difficult for a single ECA or a single commercial bank to finance a deal, making cooperation among ECAs and banks a must.

Kim said an example of that is the Ichthys project, a gas-field development project in Australia, which will cost $47.6 billion.

“Eight ECAs are taking part to offer about 23 percent of the costs, and commercial banks have also joined in the project through the ECAs’ financial guarantee. The ECAs will provide guarantees on bonds, through which institutional investors are expected to join,” he said.

The CEO said the ECA-guaranteed bond program has become more widespread since the global financial crisis as an alternative to traditional funding tools. Korea Eximbank also adopted the program in October. It is similar to financial guarantee program in terms of premium and repayment methods, but is offered to bond investors, not to commercial banks.

In July, the bank set up two new departments exclusively in charge of shipbuilding and shipping industries, respectively, to enforce its ship financing programs.

The lender’s efforts have been recognized. Marine Money introduced Korea Eximbank’s programs in its October/November issue.