Korea will expand financing support for local shipbuilders struggling with cash shortages caused by less global demand and tightened credit lines, the finance ministry said Thursday.

Shipbuilders are facing bleak business conditions as the eurozone debt problems and global economic slowdowns result in less demand. Financing needed to produce ships has also been squeezed as European banks reduced lending in the wake of their recent credit downgrades.

Korea is home to world leading shipbuilders, including Hyundai Heavy Industries Co.

In order to help struggling local shipbuilders, the state-run Export-Import Bank of Korea is planning to hike its maximum amount of production financing to 3 trillion ($2.61 billion) for this year from 1.9 trillion won.

The decision was made during a meeting presided over by President Lee Myung-bak, according to the ministry.

Production financing is aimed at providing loans to support large-scale production until settlement is made. Shipbuilders have used 1.6 trillion won worth of production financing during the first half.

The government will encourage other private and state-run lenders to provide such financing. It will also push for joint financing among state-run policy lenders to support a large-scale export worth $2 billion or more, the ministry said.

Meanwhile, export financing will also be increased significantly for small and medium-sized companies, the ministry said. The government raised the ceiling on the total amount of trade financing from 5.2 trillion won to 6.9 trillion won. (Yonhap News)