□ On July 15, Korea Eximbank (www.koreaexim.go.kr, Chairman Yong Hwan Kim) concluded an Export Factoring Agreement with Shinhan Bank (President & CEO Jin Won Suh) to assume the risk of default by importers.

○ Export Factoring is an advanced financing method by which the bank purchases export receivables on a without recourse* basis from exporters for credit transactions without letters of credit. In doing so, the bank provides exporters with liquidity.

* Under the without recourse condition, payment cannot be sought from the respective exporter in the event of default by the importer.

○ The trend of credit transactions without letters of credit are increasing in international trade. Under this agreement, Korea Eximbank ultimately takes on the risks involved in the repurchase of an export receivable purchased by Shinhan Bank from trading companies.

□ Under K-IFRS, the standard applied to listed companies beginning this year, export factoring benefits the financial structure of an export company because the amount factored is not entered in the books as debt.

○ When an exporter sold an export bill to a bank under the previous K-GAAP standard, the bill was appropriated in the exporter’s financial statement as contingent liability. However, under the new K-IFRS, the export bill is listed as debt and is thus disadvantageous to the financial structure of the exporter by increasing the company’s debt ratio.

○ Since export receivables are not appropriated as debt through export factoring, high demand for factoring is anticipated from export companies that executes a large proportion of transactions without letters of credit.

□ An official from Korea Eximbank stated, “The conclusion of the agreement is in line with the MOU signed with eight domestic commercial banks on April 28 in order to strengthen financing partnerships in overseas projects. The agreement is anticipated to maximize the benefits of coupling Korea Eximbank’s capacity to undertake foreign risks through export factoring with the broad network of Shinhan Bank.”

□ After Korea Eximbank introduced export factoring on a without recourse basis to Korea in 2005, the Bank fully utilized its expertise as a sovereign credit rating agency to provide KRW 2.609 trillion through export factoring in 2010 and maintains partnerships with over 100 global financial institutions which are members of the International Factoring Association.