Audit finds Export-Import Bank wasted up to W30.1b by fixing foreign bond fees

The Export-Import Bank of Korea routinely fixed its foreign bond underwriting fees regardless of market conditions, forfeiting hundreds of billions of won in potential cost savings, a government audit has found.

The Board of Audit and Inspection on Tuesday released a regular audit report on the bank showing it had failed to reflect market price movements when setting foreign bond underwriting fees, missing cost-saving opportunities worth up to 30.1 billion won ($21.3 million).

According to the report, the bank paid 142.4 billion won in fees to lead underwriter investment banks while issuing 47.7 trillion won in foreign bonds over the past five years. The fee rate had been uniformly fixed at 30 basis points — where one basis point equals 0.01 percentage point — of the bond issuance amount since 2010. In 2023, the bank went further, removing the fee rate as an evaluation criterion in lead underwriter selection on the grounds that it lacked practical effect, effectively eliminating price competition altogether.

The audit board compared the fee structures of 36 bond-issuing institutions with credit ratings similar to or lower than the bank's, finding that market practice generally calls for lower fee rates when maturities are shorter and issuers carry higher credit ratings. On that basis, the board calculated that the bank could have saved between 8.5 billion won and 30.1 billion won over the past five years had it differentiated fees by bond maturity in line with market trends.

"The Export-Import Bank of Korea ranks first domestically and second in Asia by bond issuance volume, and as an SSA-class issuer it holds strong negotiating power given its high credit standing," the audit board said. "It needs to determine appropriate fees by comprehensively weighing its leverage as a major issuer and fluctuating issuance costs, and to reduce fees through competitive bidding."

The audit also uncovered a series of problems in credit management and post-disbursement oversight. The board found that the bank had improperly passed on education tax — a cost the bank itself is required to bear — to loan borrowers, collecting 7.78 billion won in excess charges.

In addition, the audit cited the bank's practice of upgrading borrowers' credit ratings without clear justification after objective indicators had triggered downgrades, thereby enlarging credit losses. Also flagged were lax operation and delayed processing of internal liability reviews meant to determine employee culpability, and the unauthorized retention of an immunity provision that had been slated for abolition.

The Board of Audit and Inspection identified a total of seven illegal or improper practices across four core business areas — fundraising, credit screening, financial support and post-disbursement management — and issued 10 caution demands and notifications against the bank.