Eximbank's lending limits hinder Korea-Poland arms deal

The Korea Times

The Korea Times

Finance

Sun, December 10, 2023 | 06:57

Eximbank's lending limits hinder Korea-Poland arms deal

Posted : 2023-10-11 16:10

Updated : 2023-10-11 22:27

Export-Import Bank of Korea (Eximbank) headquarters in Yeouido, Seoul / Courtesy of Eximbank

By Yi Whan-woo

The maximum legal cap on the loans and guarantees provided by the Export-Import Bank of Korea (Eximbank) on government-backed exports is standing in the way of Korea’s biggest-ever arms deal with Poland.

According to financial and military sources, Wednesday, chances for a second round of arms contracts between Korean defense companies and the Polish government are fading after the previous deal in 2022 worth 17 trillion won ($12.6 billion).

The 2022 deal, involving supplies of tanks, howitzers and fighter jets, drew the spotlight as the biggest arms export in Korean history.

It was made possible as Eximbank and the Korea Trade Insurance Corp., both state-run institutions, offered 6 trillion won each in financial support in the form of loans and guarantees to the Polish government.

This year, Korean defense firms seek another contract worth 30 trillion won to better capitalize on last year’s success.

However, Eximbank cannot currently afford to provide the necessary financial support, according to a law concerning its governance.

The law stipulates that the maximum amount of Eximbank’s financial support to a borrowing country should not exceed 40 percent of its equity capital.

That capital totaled 18.4 trillion won, meaning it can finance Poland up to 7.36 trillion won as part of the arms deal.

Having already financed 6 trillion won last year, Exmibank can only support 1.36 trillion won this time around, far short of the second-round 30 trillion won arms contract to be realized.

“The deal was expected to be concluded by the end of the first half of the year, but it is getting delayed indefinitely,” said a defense source, attributing the delay to “Eximbank’s lack of support.”

The defense industry correspondingly is calling for amendments to the law “in a swift manner.”

A bill was proposed at the National Assembly in July to double the equity capital of the lender and subsequently increase its maximum legal cap on loans and guarantees. However, little progress has been made due to political factors.

Under the circumstances, an official at Eximbank said the lender will "address the issue if there is a question at their upcoming audits in the National Assembly" jointly with the Ministry of Economy and Finance.

The bank operates under the wing of the ministry. The audit for the ministry will run from Oct. 20 to 21 and for the bank on Oct. 24.

“We’re well aware of the concerns on the arms deal caused by Eximbank’s maximum legal cap on financial support,” the official said.