The Korea Development Bank (KDB) may see more than 1 trillion won ($933 million) in losses for 2013, largely due to huge loan-loss reserves for financially troubled conglomerates, the chief of the bank said

KDB losses may surpass W1 tril.

By Kim Rahn

The Korea Development Bank (KDB) may see more than 1 trillion won ($933 million) in losses for 2013, largely due to huge loan-loss reserves for financially troubled conglomerates, the chief of the bank said.
Hong Kyttack, CEO of the bank and chairman of the bank’s parent company, KDB Financial Group, said Tuesday the policy lender’s net losses for last year may surpass 1 trillion won, although the exact amount will come out in March.
“We had to set aside larger-than-expected loan-loss reserves as many large companies fell into financial troubles last year, including STX Group,” he said at a media briefing at the bank’s building in Seoul.
The chairman added that the bank also had losses from its stake in Daewoo Engineering & Construction (E&C).
“We acquired Daewoo E&C in 2010, and the firm’s stock price kept falling amid a slump in the construction industry. We have to write it off as losses, and the amount is huge,” Hong said, not elaborating on the amount.
KDB bought the builder’s stocks at around 15,000 won per share at that time, but it is now 7,400 won.
However, he expected some 600 billion won in net earnings this year from reduced loan-loss reserves, more interest income and stronger risk management.
Hong also denied the allegation that Daewoo E&C attempted accounting fraud to cover huge losses and KDB was aware of it.
It was alleged that Daewoo E&C has hidden some 1.4 trillion won of losses and planned to write it off by cooking accounting books for five years through 2017. The Financial Supervisory Service has been investigating the suspicion following a tip.
“It was not confirmed losses, but an estimate of possible losses the builder may see if problems occur with its future or ongoing construction projects. The KDB examined the report as well and discussed with the builder how to minimize the potential losses,” he said. “It is a scenario drawn up for risk management.”
For affiliates of STX Group, of which the KDB is the major creditor, Hong said STX Pan Ocean’s court receivership programs are well carried out, while four other subsidiaries are under debt rescheduling.
“In case of STX Offshore and Shipbuilding, the company’s executives provided insufficient and distorted information about its financial condition. So we had to re-inspect the condition and found the actual debts were larger than first known. We are redrawing new workout plans with other creditor banks,” he said.
The lender is also supporting major conglomerates’ self-help schemes to resolve liquidity shortages, including Dongbu, Hyundai and Hanjin groups.
Hong said the bank is preparing the planned re-merger with the Korea Finance Corp., which was spun off from the KDB in 2009, although the passage of the revision bill is being delayed in the National Assembly.