Behind K-shipbuilding's recent emergence as a key partner in the U.S. "MASGA" (Make American Shipbuilding Great Again) project lies a ship financing innovation by the Export-Import Bank of Korea (Korea Eximbank) more than 20 years ago.
In the past, ship export financing operated under a "Supplier's Credit" model, in which shipyards granted importers long-term installment payments and discounted the installment receivables to Eximbank to recover the funds. Shipyards bore both the financing costs and the burden of long-term debt, limiting their ability to expand orders. Indeed, from 1996 to 2002, Eximbank's ship financing support averaged just one vessel per year.
In response, Eximbank decided to provide loans directly to importers such as overseas shipowners, rather than to domestic shipyards. By shifting to "Buyer's Credit," under which importers repaid loans to Eximbank in installments, shipyards were relieved of the risk of recovering funds and the financial burden, allowing them to focus on construction. To manage risk, Eximbank also introduced structured financing that used the vessel itself and future charter revenue as collateral and repayment sources.
As a result, Eximbank's ship financing support surged to 23 vessels in 2003 and 79 vessels in 2004. After overhauling its ship financing model, Korea's shipbuilding industry, coinciding with a shipbuilding super-cycle, overtook Japan to become the world's No. 1 for the first time in history.
Shin Dong-kyu, the former Korea Eximbank chief who transformed the ship financing paradigm during his tenure from 2003 to 2006 and laid the foundation for the shipbuilding industry's competitiveness, said in an interview with The Seoul Economic Daily on the 3rd of this month: "As we changed the ship financing method, a large number of structured finance experts capable of analyzing collateral value were trained. I believe K-shipbuilding's position as the core of Korea-U.S. investment cooperation is the fruit of the seeds we sowed back then."
It was also Eximbank that actively stepped forward to issue refund guarantees (RGs) to revive the shipbuilding industry, which fell into a prolonged slump after the global financial crisis. As the shipbuilding downturn unfolded in the mid-to-late 2010s, the number of shipyards capable of building vessels of 1,000 tons or more shrank from around 30 to six. As a result, private financial institutions such as commercial banks were reluctant to issue RGs. An RG is a guarantee under which a bank returns the advance payment made by a shipowner if a shipyard fails to deliver a vessel on time after signing a contract with the shipowner, making it an essential element of ship construction contracts.
Eximbank itself was in a difficult environment, posting a loss for the first time since its founding due to the prolonged slump in shipbuilding and overseas construction and non-performing loans, but it actively engaged in issuing RGs. Leading the banking sector's joint RG-sharing scheme, it took responsibility for more than half of the total supply. Shin said, "During shipbuilding booms, issuing RGs is easy, but as soon as things get even slightly difficult, RGs are cut off abruptly, so policy finance must step in. Without Eximbank, today's shipbuilding industry would not have been easy."
It was also during Shin's tenure that the foundation for the growth of Korea's shipping industry was established. At the time, purchase financing was provided only when overseas shipowners ordered vessels from domestic shipyards, forcing domestic shipping companies to rely on high-interest overseas lease financing. After consultations with the government, Eximbank established the "Ocean-Going Vessel Purchase Financing Support System" for domestic shipping companies in 2003, securing fairness in financing conditions between domestic and overseas shipowners. Through this, it lowered the ship financing costs of domestic shipping companies and secured order volumes for domestic shipyards, building a virtuous cycle ecosystem for shipping and shipbuilding.
It was also Eximbank that extended a hand to the shipping industry, which fell into crisis after the bankruptcy of Hanjin Shipping in February 2017. At the time, the government sought to secure 20 ultra-large container ships to nurture Hyundai Merchant Marine (now HMM) into a global ocean-going container carrier, but private finance was reluctant to participate amid a prolonged shipping slump. Eximbank took on relatively higher-risk mezzanine loans and subordinated funds, actively supporting HMM's recovery of competitiveness.
Eximbank played a role not only in the crises of individual industries such as shipbuilding and shipping, but also in moments of national economic crisis. During the 1997 foreign exchange crisis, when foreign currency liquidity contracted sharply, it expanded its trade bill rediscount business, buying back export bills that commercial banks had purchased from companies to supply foreign currency. Trade financing grew from 845 billion won in 1998 to 1.555 trillion won in 2005.
During the 2008 global financial crisis, it stepped forward to directly supply foreign currency liquidity. When foreign currency borrowing was suspended and the share of short-term external debt surged, Eximbank was entrusted with $25 billion from the Foreign Exchange Stabilization Fund and swiftly supplied it to 16 domestic companies, overcoming the crisis. It supported trade financing such as raw material imports and export bill discounting, while some funds were supplied through competitive bidding.
During the COVID-19 pandemic, it provided 26.6 trillion won to small and medium-sized enterprises through new liquidity supply and maturity extensions. In particular, Doosan Heavy Industries & Construction (now Doosan Enerbility), which it supported alongside the Korea Development Bank, underwent structural improvement and grew into a key company supporting power demand in the age of artificial intelligence (AI).
Shin said, "It was a difficult time for Eximbank as well, but we actively supported commercial banks that struggled to raise foreign currency. In each difficult period of upheaval, we have overcome crises through creative ideas in consultation with the government."
Discussions on establishing Eximbank began in the 1960s during the transition of the industrial structure from light industry to heavy and chemical industries. The "Export-Import Bank Act" was enacted in 1969, but with difficulty raising capital, the bank for some time operated as a medium-and-long-term deferred-payment export department within the Korea Exchange Bank. Later, as heavy and chemical industry exports gained momentum, it launched independently in 1976 with capital of 150 billion won. Over the 50 years since its launch, it has provided 1,547 trillion won to 18,000 client companies worldwide, growing into a leading policy finance institution supporting the Korean economy.
Shin devoted himself to developing Eximbank into an advanced-nation-style state bank. He secured an additional government capital injection of 500 billion won to support Korean companies' entry into large overseas projects, and established overseas offices in hub cities such as Dubai, Shanghai, and New Delhi. He explained, "The place that sets ship financing rules is the Organisation for Economic Co-operation and Development (OECD), but there was not even an office in Paris, France, where its headquarters was located. Because Eximbank's global network needs to expand to diversify export markets, I took it upon myself to act as a salesman."
It was also Shin who led the launch of the Korea-China-Japan Export Credit Agency (ECA) consultative body together with China Exim and the Japan Bank for International Cooperation (JBIC) in 2004. In 2006, he also created the Korea-Africa Economic Cooperation (KOAFEC), gathering finance ministers from 20 African countries in cooperation with the African Development Bank (AfDB).
Shin said, "We are now in a structural transition period in which geopolitical fragmentation and the AI technology revolution are progressing simultaneously. At times like these, Eximbank must serve as the last safety net and a catalyst for future growth." He particularly emphasized providing financing for ultra-large order-based industries such as defense, nuclear power, and infrastructure. He said, "The weaponization of resources and supply chain crises caused by global fragmentation are difficult for individual companies to bear. Eximbank must be able to provide preemptive financing to companies pursuing the securing of critical minerals and the diversification of supply chains."
Shin also stressed the need to expand Eximbank's capital. As of the end of last year, Eximbank's equity capital stood at $18.67 billion, smaller than China Exim ($56.24 billion) and Japan's JBIC ($21.71 billion). He said, "Ultra-large projects such as defense and nuclear power are large in scale, so the government also needs to further expand Eximbank's capital. If advanced-nation ECAs have large capital and only Korea has little, there can be no competition."
