Government Increases Trade Finance by '36 Trillion+α' to 316.3 Trillion... First Ever Extension of Export Insurance Limit Without Reduction

"To Keep Exporters' Funding Flowing in the US, China, and EU"
30 Trillion Invested in Export Insurance Deductible Waiver Extended for 1 Year
Trade Finance Support Increased More Than 12 Times in Two Months

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] The government will provide an additional 36 trillion won or more in trade finance to prevent export contraction caused by the novel coronavirus infection (COVID-19). It aims to help Korean export companies secure sufficient liquidity in key markets such as the United States, China, and the European Union (EU). For the first time ever, it will pour 30 trillion won to allow export companies to extend the maturity of export insurance and guarantees without any reduction. This demonstrates a strong determination to prevent early mishaps such as global financial institutions recalling loans during the recession.

On the 8th, the government held the '4th Emergency Economic Meeting' and announced that it would provide an additional 36 trillion won plus alpha in trade finance to Korean export companies. Adding about 36 trillion won to the 260.3 trillion won announced at the 'Expanded Trade Strategy Adjustment Meeting' at the end of February, the total support will exceed 296.3 trillion won. Including the recent 20 trillion won financial support announced by the Export-Import Bank of Korea, the total reaches a record high of 316.3 trillion won. At the end of February, an additional 3.1 trillion won was provided on top of the previous 257.2 trillion won, but this time the support scale has increased by about 12 times.

This export support is broadly divided into three categories: ▲ resolving export difficulties ▲ stabilizing global supply chains ▲ reducing corporate research and development (R&D) burdens. The government places emphasis on supporting export companies' financial difficulties. Since most key markets are within the visible range of COVID-19, supply chains and demand could collapse simultaneously, prompting extraordinary measures.

Notably, for the first time ever, it was decided not to reduce the amount when extending the maturity of export insurance and guarantees for export companies. Accordingly, 30 trillion won will be provided. Going forward, export companies in the U.S., China, and the EU can extend the maturity of insurance and guarantee limits for one year without any reduction. Related support amounts to 28.7 trillion won. To allow small and medium-sized enterprises (SMEs) and mid-sized companies to extend the maturity by one year without reduction as a pre-shipment guarantee, 1.3 trillion won will be invested. Since more than 10,000 buyer-related institutions in the U.S., China, and the EU are likely to face massive credit rating downgrades, the government has strengthened guarantees to ensure that Korean export companies do not face difficulties in raising funds from financial institutions.

A government official said, "When the economy is difficult, most financial institutions lower their credit ratings and reduce loan limits," adding, "This is to help companies avoid situations where they have the capacity to repay but receive less funding than expected from financial institutions." He said, "At least for one year, this is intended to allow companies to focus on exports without worrying about finance, and it is expected to be more effective than cash support."

Additionally, '5 trillion won plus alpha' will be supplied to support overseas economic stimulus project orders. The Korea Trade Insurance Corporation will provide 5 trillion won in guarantees and loans to overseas ordering parties, and if demand increases, KDB Industrial Bank and the Export-Import Bank will supply additional funds. To prevent insolvency despite profits, 900 billion won in emergency liquidity support will be injected. Specifically, this includes export stabilization fund guarantees (100 billion won), expansion of early cash conversion support for export receivables (from 500 billion to 700 billion won), production fund guarantees based on supply contracts (500 billion won), and overseas corporation fund guarantees (100 billion won).

Among these, the expansion of early cash conversion of export receivables is a policy emphasized by the Ministry of Trade, Industry and Energy as a direct support measure for liquidity crises of SMEs and mid-sized companies by doubling the cash conversion limit for automotive parts and shipbuilding equipment companies. A ministry official explained, "Due to the global COVID-19 crisis, if financial institutions recall loans, companies may face temporary liquidity difficulties and become insolvent despite profits, which is why this policy was implemented."

In addition, 26.5 billion won will be provided to reduce export insurance and guarantee fees by 50% for small and mid-sized export companies. Starting next month, credit standards will be relaxed and online trade insurance and guarantees will be introduced. To support companies that have export capacity but had difficulty receiving support, 50 billion won will be invested to enable them to receive insurance and guarantees through screening.

Also, online insurance and guarantees will be launched next month, reducing the processing period from 5 days to 1 day and eliminating the existing three-document submission procedure. In the process of deciding, operating, or executing these measures, acts without intentional or gross negligence and any resulting losses will be exempt from administrative sanctions, and measures will be taken to prohibit disadvantages in evaluations.

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