The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Yong Hwan Kim, “ Korea Eximbank”) announced on October 10 that it concluded an MOU with Hana Bank to conduct forfaiting transactions.

Forfaiting is a financial transaction whereby a financial institution purchases an exporter’s receivables under a Letter of Credit on a without-recourse* basis.

* Without recourse: the exporter is not held liable in the event that the forfaiter is unable to collect payments for purchased trade receivables due to reasons such as importer default.

In this way, exporters can reduce the risk of non-payment by importers while also improving their balance sheets, since receivables forfaited do not count as debt.

Under the MOU, Korea Eximbank ultimately assumes the risk of importer default by repurchasing export bills first purchased by Hana Bank from exporters.

The non-recourse nature of Hana Bank’s forfaiting service is likely to encourage more exporters to exploit it as a way to bolster their liquidity.

Forfaiting would also help exporters substantially improve their finances.

Under the International Financial Reporting Standards (K-IFRS) for listed companies introduced last year, receivables forfeited on a without-recourse basis do not count as debt and therefore contribute to the soundness of a company’s balance sheet.

A Korea Eximbank official commented, “This MOU was promoted in an effort to relieve the financial stress of exporting SMEs due to the global economic slowdown. We are hopeful that our risk underwriting ability and Hana Bank’s broad network of branches will generate strong synergies in terms of helping exporters grow their businesses.”

Korea Eximbank has signed forfaiting-related MOUs with four commercial banks* including Hana Bank, and has provided KRW 509.9 billion in forfaiting funds to exporter as of last month.
* Shinhan Bank, Kookmin Bank, Foreign Exchange Bank, Hana Bank

This figure represents a 154% increase from the same period of the previous year.