KCCI: "Corporate Financing Conditions Improved, but Continued Government Support Needed"

[Asia Economy Reporter Changhwan Lee] Although the market has entered a certain level of stabilization phase thanks to various corporate financial support measures by the government, claims have been raised that continuous support is necessary as small and medium-sized enterprises (SMEs) still face difficulties in their financial conditions.

On the 5th, the Korea Chamber of Commerce and Industry (KCCI) released a report titled 'Evaluation and Tasks of Recent Corporate Financial Support Policies,' diagnosing that the government's strong will to stabilize the market, demonstrated by the active corporate financial support measures introduced since last March, has significantly contributed to calming market anxiety.

In particular, measures implemented in the first half of the year, such as the Bond Market Stabilization Fund and support for issuing Project-Collateralized Bond Obligations (P-CBOs), were evaluated to have had considerable improvement effects mainly in the high-grade corporate bond market (AA rating or higher).

In July, the government, the Bank of Korea, and the Korea Development Bank cooperated to newly establish a Special Purpose Vehicle (SPV) for purchasing corporate bonds and commercial papers (CP) that supports even the low credit rating market (A rating or below). The SPV has recently shown active moves by directly participating in demand forecasts not only for high-grade corporate bonds but also for non-investment grade bonds.

Thanks to these policy authorities' support measures, the market is gradually showing signs of stabilization. The credit spread, which is the difference between the 3-year unsecured corporate bond yield and the 3-year government bond yield, has been narrowing since early June for high-grade bonds (AA- rating).

Non-investment grade bonds (A+ rating) have also shown a downward trend since the end of July. Additionally, net issuance of corporate bonds (the difference between issuance amount and maturity repayment) indicating corporate funding conditions continues.

◆ 8.5 Trillion KRW of Corporate Bonds Maturing in Q4... SME Financial Conditions Still Difficult

However, the KCCI emphasized the need to continue financial support for companies as the COVID-19 spread and domestic and international economic conditions remain uncertain.

The scale of corporate bonds maturing within this year reaches 8.5 trillion KRW, and despite previous financial support, the increase in loans for SMEs remains at a high level.

Over the past three years (2017?2019), SME loans increased by an average of 3.5 trillion KRW per month, but in July this year, they surged by 6.4 trillion KRW and by 6.1 trillion KRW in August. This suggests that SMEs' financial difficulties may be persisting.

Corporate funding demand is also expected to remain at a high level for a considerable period. In August and September, government quarantine measures were strengthened mainly in the Seoul metropolitan area, causing SME business operations to shrink and financial conditions to deteriorate significantly.

Min Kyung-hee, a research fellow at KCCI, said, “Currently, the SPV's support performance remains at around 1.3 trillion KRW, so it is necessary to actively expand this,” adding, “The Industrial Stabilization Fund should also accelerate to ensure appropriate support is provided to companies struggling due to COVID-19.”

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