Korea mulls $11.3 billion fund supply to Eximbank for defense exports

[Courtesy of Hanwha Aerospace]

The South Korean government is pushing for a 15 trillion won ($11.3 billion) investment in the Export-Import Bank of Korea (Korea Eximbank) by 2030 to propel the country’s defense exports.

According to the National Assembly on Wednesday, the Ministry of Economy and Finance recently submitted an investment proposal for Korea Eximbank for review by the National Assembly’s planning and finance committee. The proposal includes a plan to contribute 10 trillion won in non-monetary assets to Korea Eximbank, utilizing the government’s holdings in the Korea Land and Housing Corp. (LH) and Korea Expressway Corp. stocks, and an additional 5 trillion won in cash, depending on the government’s budget conditions.

In July, a bill to amend the law on the Korea Eximbank was proposed to expand its capital to 25-35 trillion won to support large overseas orders, but the bill has been pending in the National Assembly for six months.

Under the current Korea Eximbank Act, the credit limit for specific individuals or corporations is restricted to 40 percent of their equity. Korea Eximbank’s equity last year totaled 18.4 trillion won, including 15 trillion won in capital, and the policy finance limit for individual companies was 7.4 trillion won. There is no additional funding capacity for the Eximbank, with 98 percent of the statutory capital of 15 trillion won already exhausted.

In 2022, the Polish government decided to purchase 1,000 K2 tanks from Hyundai-Rotem Co., 648 K9 self-propelled howitzers, and 288 Chunmoo multiple launch rocket systems from Hanwha Aerospace Co., and 48 FA-50 light combat aircraft from Korea Aerospace Industries Ltd.

Under the first contract in the same year, the Polish government bought weapons worth about 17 trillion won, supported by Korea Eximbank and the Korea Trade Insurance Corp. with 6 trillion won each in export financing.

However, the Korea Eximbank’s policy finance limit has posed a challenge for the remaining 30 trillion won second contract. Although some parts of the second contract, including an additional export of 152 K9 self-propelled howitzers, were realized at the end of last year, the final order is uncertain as it was a conditional contract premised on financial support.

The domestic defense sector fears that a failure of the proposed amendment could jeopardize the second contract and their future prospects in European markets, especially amid heightened European interest in Korean weapons following Poland’s orders.

At present, Hanwha Aerospace’s K-9 has been selected as an eligible bidder in the Romanian government’s 2.5 trillion won project to introduce a self-propelled howitzer.

“If the contract is broken due to a lack of financial support, it will be a big blow to our credibility,” said a defense industry insider.