Korean Exim Bank policy changes boost construction sector

The Exim Bank of Korea has lowered foreign earnings ratios for construction companies seeking guarantees in an attempt to boost the flagging sector.

The Exim bank of Korea has lowered from 20% to 15% the minimum foreign exchange earning ratio for Korean construction companies seeking guarantees from the bank for their overseas projects. This follows a downturn in overseas demand for the services of Korean construction companies.

These guarantees are provided to Korean commercial banks, local branches of foreign banks, and foreign banks involved in transactions financed by the Bank. The guarantees will be made in three forms: The Bank will guarantee to refund to overseas importers 100% of advance payments made to Korean exporters; the Bank will provide a 100% guarantee on the performance of a domestic exporter, and lastly, the Bank offers repayment protection for private sector loans to exporters.

In a further attempt to boost the local construction industry, the Exim Bank has also changed its overseas project credit policy. The banks will now provide finance to construction firms that engage in business outside Korea, procuring materials for overseas' projects from third party countries, says W.K. Chung, deputy director of credit policy at Exim. Previously, Korean construction firms were only able to obtain finance for that part of the project that utilised Korean materials or labour. Korean construction firms will be able to borrow funds up to 15% of the contract price made with third parties.

The main reason for the changes in policy, Chung says, is that constuction firms in Korea were having difficulty obtaining down payments on construction contracts to kick-start overseas projects. 

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