Support for Large Corporations Affected by COVID-19, Temperature Gap Between Ministry of Economy and Finance and Financial Authorities (Comprehensive)

Ministry of Economy and Finance "Reviewing Support Measures for Key Industries"
Financial Services Commission "Reaffirming Principles for Supporting Large Corporations"

Eun Sung-soo, Chairman of the Financial Services Commission

[Asia Economy Reporters Kim Hyo-jin and Kim Min-young] As the novel coronavirus disease (COVID-19) crisis begins to unleash a fierce wave of high-intensity restructuring across industries, the Ministry of Economy and Finance and financial authorities are showing differing stances on support for large corporations.

While the Financial Services Commission has taken a step back on supporting large corporations, emphasizing that "self-help efforts come first," the Ministry of Economy and Finance, which oversees the whole-of-government support program, has announced plans to provide policy support for key industries. In this urgent crisis situation, where large corporations are reaching their payment capacity limits, experts point out the need for close coordination and swift response among government ministries.

On the 3rd, Kim Yong-beom, First Vice Minister of the Ministry of Economy and Finance, stated at the macroeconomic and financial meeting held at the Bankers Hall in Myeong-dong, Seoul, "We are closely monitoring the maturity schedules, issuance status, and interest rate spread trends in the short-term money market and corporate bond market," adding, "We are reviewing various policy support measures necessary for key industries that are economically important to the nation."

This contrasts with the position expressed the previous day by Sohn Byung-doo, Vice Chairman of the Financial Services Commission, at the financial situation review meeting, who said, "Large corporations must first implement self-help efforts by maximizing the use of internal reserves and available assets to primarily raise funds from the market."

Financial Services Commission Chairman Eun Sung-soo also said on the 31st of last month, after signing a business agreement to establish a securities market stabilization fund with the financial sector, "Any company seeking help from policy banks must make self-help efforts." In other words, while financial authorities say they cannot prioritize support for large corporations, the Ministry of Economy and Finance is actively reflecting the industry's sense of crisis in policy and plans to expand financial support.

The government allocated 58.3 trillion won of the over 100 trillion won COVID-19 related livelihood and financial stability fund announced on the 24th of last month for corporate support funds. While prioritizing support for small and medium-sized enterprises and small business owners, large corporations are also included as beneficiaries. However, given the repeated remarks from the Financial Services Commission as the control tower, the market is concerned that actual support for large corporations is unlikely.

The industry's sense of crisis is reaching a peak. The aviation industry, along with refining and automobile sectors, has been directly hit by COVID-19 and has begun large-scale restructuring and shutdowns. An industry insider pointed out, "Large corporations that have reached their payment capacity limits are already appearing," adding, "There could be cases where otherwise sound companies face temporary liquidity shortages and go bankrupt despite being profitable."

With the end of the fiscal year and the start of the credit rating season for major companies this month, if a chain of rating downgrades becomes a reality, there is a possibility that many companies will face liquidity crises due to the spread of 'credit risk.'

Corporate business outlooks are also near their worst. According to the Business Survey Index (BSI) conducted by the Korea Economic Research Institute targeting the top 600 companies by sales, this month's BSI recorded 59.3, the lowest in 135 months since January 2009 (52.0) during the global financial crisis. It fell 25.1 points from the previous month (84.4), marking the largest drop since the International Monetary Fund (IMF) bailout crisis.

Meanwhile, on the same day, the Financial Services Commission held a market monitoring meeting chaired by Chairman Eun, reaffirming the principles of financial support for large corporations, including financial companies.

The Financial Services Commission explained, "Efforts to raise funds primarily through transaction banks and the market are necessary," adding, "If these efforts prove insufficient, government support programs may be used, but as seen in foreign cases, some burden in terms of interest rates, guarantee fees, and maturities is inevitable."

The Financial Services Commission further stated that if support is still insufficient, policy financial institutions will decide on support by comprehensively considering the individual large corporation's self-help efforts, liquidity, and financial conditions.

This content was produced with the assistance of AI translation services.