[Exclusive] Banks on Edge as Loans to Yeochun NCC Exceed 1 Trillion Won

Exposure of Five Major Banks to Yeochun NCC Nears 1 Trillion Won
Yeochun NCC Averts Immediate Crisis with Shareholder Funding
Short-Term Financial Recovery Remains Uncertain

Yeochun NCC, which narrowly avoided bankruptcy thanks to emergency funding from Hanwha and DL Group, continues to face liquidity instability and mounting losses, keeping the banking sector on edge. Exposure to Yeochun NCC by the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) alone amounts to 924.2 billion won, and when including Korea Development Bank and Export-Import Bank of Korea, the total reaches approximately 1.5 trillion won. Most observers believe it will be difficult for the company to improve its financial structure in the short term.

According to the financial sector on August 12, as of August 10, the exposure of the five major commercial banks to Yeochun NCC is as follows: KB Kookmin Bank has the largest exposure, with 226.1 billion won in loan receivables and a total of 390.3 billion won when including guaranteed bonds and derivatives noted in the footnotes. Woori Bank follows with a total of 180.5 billion won, including 58 billion won in loan receivables. Hana Bank has a total exposure of 162.6 billion won, Shinhan Bank has 113.6 billion won in loan receivables, and NH Nonghyup Bank has 77.2 billion won in loan receivables.

Although Yeochun NCC barely escaped bankruptcy thanks to financial support from Hanwha and DL Group, significant liquidity risk remains, and banks holding its bonds are still on alert. As of the first quarter of this year, Yeochun NCC's assets stood at 3.3 trillion won, with liabilities of 2.4 trillion won (a debt ratio of 281%), and total borrowings reaching 1.4 trillion won. Of this, short-term borrowings alone amount to 927.8 billion won, with about 517.5 billion won set to mature next year. The fact that its cash and cash equivalents are only 77.7 billion won is also a burden. The company’s continued financial deterioration due to accumulated losses means that, even with support from Hanwha and DL Group, the crisis cannot be considered resolved.

An investment banking (IB) industry insider commented, "Thanks to support from the shareholders, the immediate impact on the banking sector will be limited. However, given the large amount of short-term borrowings maturing soon, if the industry downturn persists, not only will further group support be needed, but fundamental normalization measures, such as shutting down outdated facilities, should also be considered."

In fact, credit rating agencies are closely monitoring Yeochun NCC's cash flow. Among the three major domestic credit rating agencies, Korea Ratings and NICE Investors Service have recently assigned Yeochun NCC an A- rating with a 'negative' outlook. A 'negative' outlook means that while the credit rating will not be downgraded immediately, the agencies will monitor the company's financial condition and consider a downgrade in the future. If Yeochun NCC is downgraded by even one notch, it will lose its A-grade status.

A bank official stated, "With the economic downturn, delinquency rates have risen, and we have consistently sold off and written off non-performing loans, but the pace of increase in bad debt is faster than expected. Since growth in household loans has stalled, it is also not easy to expand corporate lending, which adds to the burden."

Some observers speculate that DL Group, Yeochun NCC's largest shareholder, is hoping for support from the government and the financial sector. However, financial authorities and banks are insisting that the company first make self-rescue efforts and resolve the situation through support from its major shareholders.

A financial sector official said, "If self-rescue efforts fail, financial sector-level funding support could be considered, but at this stage, intervention is not appropriate. Industrial restructuring through voluntary self-adjustment should come first."