Lee Ju-yeol "COVID-19 is not a shower but a monsoon... Need to reconsider corporate loan methods"

Need for Change in All-Directional Support Methods
Implications for Shifting Management Innovation Induction Approaches

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] As the novel coronavirus disease (COVID-19) crisis is lasting longer than expected, Lee Ju-yeol, Governor of the Bank of Korea, raised the issue that the current all-around corporate loan approach in the banking sector needs to change.

According to the banking sector on the 30th, Governor Lee attended a bank presidents' meeting held at the Bankers' Hall in Jung-gu, Seoul, as an invited guest on the 22nd, stating, "I thought the COVID-19 crisis was a passing shower, but now I think it might be the start of the rainy season."

He added, "If the COVID-19 crisis prolongs, we need to take a long-term view in our response," and "It is time to consider whether the financial sector can continue to provide all-around support to companies as it has been doing or if it should change its approach to support."

Governor Lee also gave specific examples of selectively supporting companies. He explained, "There could be more creative ways to support companies," adding, "We should consider support methods that induce corporate management innovation, such as supporting companies that innovatively change their business operations or having banks recommend industry changes."

Recently, experts have pointed out that although the government and the Bank of Korea have supplied massive liquidity after the COVID-19 crisis, the liquidity has not necessarily flowed to where it is most needed, reducing its effectiveness. Due to the high uncertainty caused by COVID-19, companies are taking out loans at low interest rates and accumulating cash. According to the Bank of Korea, as of the end of last month, the outstanding won-denominated loans borrowed by domestic companies from banks exceeded 945 trillion won. In May alone, domestic companies' bank loans increased by 16 trillion won. There are concerns that companies unable to cover interest payments with operating profits are surviving on loans. Since banks cannot support companies indefinitely if the COVID-19 crisis prolongs, it is explained that loans should be provided with proposals on ways companies can improve going forward.

However, Governor Lee made it clear that such remarks do not mean that support for households and companies struggling due to COVID-19 should be stopped. Quoting Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), he said, "Support for households and companies should not be stopped yet," emphasizing that "support itself must continue."

Meanwhile, on the same day, Kim Yong-beom, First Vice Minister of Strategy and Finance, made similar remarks. Vice Minister Kim stated, "Liquidity is not sufficiently flowing into productive sectors such as corporate investment, and some still complain about liquidity shortages." He also emphasized, "We will create many attractive and profitable investment destinations to induce expansion of productive private investment, and accelerate innovative finance initiatives such as improving the corporate credit system and fostering venture capital in the financial sector to ensure liquidity flows into promising companies with growth potential."

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