South Korean banks significantly reduced their credit exposure to local shipbuilders in questionable viability despite restructuring efforts due to little sign of improvement in global demand.

According to the Korea Enterprise Data and the banking industry Monday, combined loan exposure of eight state and commercial banks in three shipbuilding majors Daewoo Shipbuilding & Marine Engineering Co. (DSME), Hyundai Heavy Industries Co. and Samsung Heavy Industries Co. totaled 46.30 trillion won ($40.4 billion) at the end of last year, down 10 percent from 51.71 trillion won in late 2015.

Five commercial banks acted faster to get rid of risky loans with their exposure to the three shipyards reduced to 12.7 trillion won in late 2016 from 16.4 trillion won a year earlier.

Among the five, Nonghyup Bank cleared up 1.10 trillion won by setting aside more than 1 trillion won in loss reserves last year. Woori Bank resolved 1.09 trillion won, KEB Hana Bank 560.5 billion won, Shinhan Bank 483 billion won and Kookmin Bank 446.3 billion won.

Three state-run lenders were able to lower their exposure by 1.73 trillion won to 33.64 trillion won at the end of last year from 35.37 trillion won in late 2015. Only Export-Import Bank of Korea reduced its by 2.27 trillion won. Two other lenders Korea Development Bank and the Industrial Bank of Korea bumped up their credit exposure by 277.4 billion won and 265.7 billion won, respectively, as they had to assume more credit as a part of the debt refinancing program to keep the shipbuilders afloat.

All the creditors except for main creditor Korea Development Bank reduced exposure to DSME currently rumored to be in danger of defaulting on its debt in April. Exposure to DSME slipped from 22.91 trillion won in late 2015 to 21.45 trillion won at the end of last year.

The banking sector cut credit risk to Hyundai Heavy Industries Co. by 3.24 trillion won, to 12.81 trillion won in late 2016 from 16.05 trillion won a year earlier. Credit risk to Samsung Heavy Industries fell 704 billion won to 12.05 trillion won in late last year from 12.75 in late 2015.

By Chung Seok-woo

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