Then-National Defense Minister Lee Jong-sup, right, and his Polish counterpart Mariusz Blaszczak, attend a military welcome ceremony in Warsaw, Poland, in this August 2023 photo. AP-Yonhap

Korean defense companies breathed a sigh of relief as a law revision, intended to boost state-run Export-Import Bank of Korea's (Eximbank) equity capital, successfully passed the first round of voting at the National Assembly.

According to the Assembly, the revision bill to raise Eximbank's capital ceiling from the current 15 trillion won ($11.2 billion) to 25 trillion won was approved by a subcommittee of the National Assembly's Strategy and Finance Committee, Wednesday. The bill is anticipated to be passed at the Assembly's general meeting on Feb. 29.

The maximum legal cap on loans and guarantees provided by Eximbank has been identified as the main obstacle to Korea's second defense deal with Poland. Under current regulations, Eximbank is restricted to extending credit up to 40 percent of its equity capital to specific individuals and entities.

In the initial defense export agreement with Poland signed in 2022, Eximbank allocated 6 trillion won, equivalent to 40 percent of its capital, to Poland. This allocation has already maxed out its financial support capacity for a specific country. Consequently, to facilitate a second defense export deal valued at 30 trillion won, it became necessary to increase Eximbank's legal capital ceiling.

In response to the outbreak of the Russia-Ukraine war, Poland has actively sought to import a significant quantity of weapons but has encountered a shortage of necessary funds for these purchases. To address this, Korean financial institutions, led by Eximbank, have stepped in to provide loans to Poland, with arrangements made to recover the costs at a later date.

The domestic defense industry anticipates a significant decrease in concerns after the legislative efforts make progress.

"This legislative advancement has already brought considerable relief to us. We found ourselves in a pressing situation, where the Polish prime minister personally called for action from the Korean government, and even our eliminated competitors showed a keen interest," Rep. Park Dae-chul of the ruling People Power Party said in his Facebook posting.

While the legislation has raised the maximum capital limit for Eximbank, the actual increase in credit support requires capital deposits by the government.

"The capital increase proposal for Eximbank was not included in this year's budget, so the contributions for this year will be made as in-kind," Rep. Yoo Dong-soo of the main opposition Democratic Party of Korea said. "For the additional 10 trillion won that is needed, the government plans to execute capital injections gradually over the coming years."

Defense Acquisition Program Administration (DAPA) Minister Seok Jong-gun said DAPA is fostering close ties with the new Polish administration concerning the second defense deal.