[THE INVESTOR] NongHyup Bank, Korea’s second-largest bank by assets, will set aside loan-loss provisions of up to 1.7 trillion won (US$1.47 billion) this year to address its heavy exposure to debt-laden shipping and shipbuilding companies, the company said on June 22.

The lender said it would make a ”big bath“ provision to improve its asset quality as loans that the bank extended to troubled companies, including Dewoo Shipbuilding & Marine Engineering, may turn sour.

Big bath provision indicates an accounting strategy recognizing expected expenses and losses early in the current year to make the following year look better.

NH Bank said even if it set aside 1.3 trillion won in provisions during the first half of 2016, its key business indices will stay within acceptable levels.

The bank’s capital adequacy ratio will rise edge up to 14.1 percent from the current 14 percent by the end of the year, while its liquidity coverage ratio will rise to 106.9 percent from 103.8 percent, the firm said.

Korean Shipping and shipbuilding companies are battling losses amid falling crude oil prices and an industry-wide overcapacity that is depressing freight rates.

By Park Han-na (hnpark@heraldcorp.com)