State-run Korea Development Bank plans to downgrade forward-looking credit on Daewoo Shipbuilding & Marine Engineering Co. (DSME) to subprime grade later this month and set aside bigger loss reserves amid deteriorating outlook of the shipbuilder.
According to the banking industry Monday, the major creditor of the debt-ridden shipbuilder is mulling to revise down its loan rating on the company that is under liquidity woes due to dearth of new orders.
Korean banks are required to up loss reserves of up to 19 percent against risky loans compared with 0.85 percent for normal loans.
Commercial banks like KB Kookmin Bank and Shinhan Bank this year have placed the shipbuilder that had to seek fresh rescue fund of 4.2 trillion won ($3.7 billion) below prime level after the company reported losses over 5 trillion won last year. DSME’s liabilities have reached 16.82 trillion won, overwhelming assets of 15.59 trillion won as of the end of June. KDB is the largest shareholder and creditor of DSME.
The government created a restructuring fund of 11 trillion won to bolster capital ratio of state banks shouldering bad loans of troubled shipbuilders and shipping companies.