Government Takes Critical Measures to Prevent Export Companies' Insolvency Despite Surpluses... One-Year Fast-Track Application for Trade Finance

Checking only key factors such as 'business history, debt ratio, export performance'... Trade finance guarantee review shortened from 1 week to 2 days
Record-high support of 316.3 trillion is important, but focus is on "timely funding for export companies"

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok]

#Steel company A used to sell domestically processed steel to Europe and receive payment from buyers usually after 90 days, but it faced difficulties maintaining the 90-day credit period. This was because the average monthly export amount was halved from $1 million to $500,000 due to the novel coronavirus infection (COVID-19). The government provided guarantees for early cash conversion of export receivables, and thanks to company A immediately recovering cash from the bank using the government’s guarantee as collateral, it overcame the liquidity crisis without requesting buyers to shorten the credit period.

#Secondary battery material company B was able to focus on discovering new trading partners such as Vietnam without worrying about not being able to collect payments through short-term export insurance. This was because the Korea Trade Insurance Corporation’s credit investigation service allowed them to closely assess the importers’ creditworthiness in advance. Since company B relies on long-term trading partners in China for 90% of its sales, it was in a position to face a major crisis if it failed to collect payments from trading partners due to the direct impact of COVID-19.

The government has decided to apply a fast track for one year so that Korean export companies can timely secure funds through such trade finance. The review period, which used to take an average of one week, will be reduced to within two days. This expresses the government’s determination to fully support companies so that they do not suffer export disruptions or go bankrupt despite being profitable due to failure to secure trade finance on time amid situations like the COVID-19 pandemic.

On the 9th, Sung Yun-mo, Minister of Trade, Industry and Energy, announced this, saying he would resolve the 'cash flow blockage' of export companies. Since COVID-19 has spread to major markets such as the United States and the European Union (EU), there is a sense of crisis that export conditions will not be easy starting this month. Minister Sung made these remarks during a visit at 10 a.m. to Tirobotics, a semiconductor manufacturing equipment producer located in Osan, Gyeonggi Province. Government officials including Lee In-ho, president of the Korea Trade Insurance Corporation, and Lee Ho-hyun, director of trade policy at the Ministry of Trade, Industry and Energy, as well as Tirobotics CEO Ahn Seung-wook and employees attended.

He stated that the focus would not simply be on increasing the budget but on helping companies use funds 'appropriately and timely.' Since overseas export credit agencies of various countries (Korea’s being the Korea Trade Insurance Corporation) are focusing more on expanding emergency liquidity supply such as export production fund loan guarantees and working capital rather than merely supporting export insurance, Korea will also proceed in this direction. The government judged that since the world is facing a complex crisis caused by supply chain disruptions, global demand contraction, and a sharp drop in international oil prices due to the COVID-19 situation, it is important to help companies secure liquidity so they can survive first.

Minister Sung newly announced that the fast track for trade finance guarantee reviews will be applied for one year. A checklist review will be introduced and real-time online automatic limits will be set. Until now, export companies had to fill out details such as company name, sales, credit rating, business suspension or closure status, and customs clearance status when applying for trade finance guarantee documents, and authorities spent several days evaluating each item, but this will be completely changed.

The Ministry of Trade, Industry and Energy plans to approve export companies’ applications by evaluating key items such as 'business duration, debt ratio, and export performance.' The procedure, which used to take up to a week when reviewing documents, will be shortened to as little as one day and no later than two days.

Minister Sung emphasized, "Experts compare the relationship between the real economy and finance in the economy to the human body and blood vessels," adding, "Through this measure, we plan to thoroughly prevent so-called 'cash flow blockage' (temporary liquidity crisis) to ensure that sound export companies do not go bankrupt despite being profitable."

He said, "I hope that trade finance will serve as a stepping stone to a 'new leap forward after the crisis,'" and urged, "Please trust the government and focus on normal export activities."

Earlier, as announced at the 4th Emergency Economic Meeting the day before, the government decided to provide additional trade finance support of more than 36 trillion won. Including the recent 20 trillion won financial support announced by the Export-Import Bank of Korea, a record-high total of 316.3 trillion won in trade finance will be supported.

Additionally, the government will reduce the private matching fund burden for about 8,000 small and medium-sized enterprises (SMEs) engaged in research and development (R&D). The private matching fund burden ratio of total R&D project costs for SMEs will be lowered from 33% to 20%, and the cash portion of private contributions will be reduced from 40% to 10%.

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