[2020 National Audit] "Temporary Liquidity Crisis SMEs Should Not Be Stigmatized as Zombie Companies"

[Asia Economy Reporter Kim Hyo-jin] It has been pointed out that small and medium-sized enterprises (SMEs) facing temporary liquidity crises should not be stigmatized as zombie companies.

On the 16th, Yoo Dong-soo, a member of the Democratic Party of Korea, urged state-run banks at the National Assembly's Political Affairs Committee audit to actively support 'recovery support programs' for SMEs experiencing temporary liquidity crises, as long as it does not harm the soundness of banks.

According to Representative Yoo's assessment, the government achieved significant improvements mainly in the high-quality corporate bond market through the Bond Market Stabilization Fund and the issuance of asset-backed securities in the first half of this year. Additionally, the government launched a special purpose vehicle (SPV) worth 10 trillion won in July to purchase corporate bonds and commercial paper (CP), extending support even to the low credit rating market.

However, there are voices that it is difficult to give a positive evaluation as SMEs' dependence on indirect financing such as bank loans has increased further. Loans from financial institutions to SMEs have continuously increased, reaching 73.3 trillion won this year alone, with outstanding loan balances totaling 790 trillion won. In contrast, the amount of funds raised by SMEs through direct financing was only 1.8 trillion won this year. Despite the government's active measures against the novel coronavirus disease (COVID-19), liquidity crises among SMEs persist.

Representative Yoo Dong-soo emphasized, "The government's COVID-19 countermeasures have had a positive impact on direct and indirect financial markets, somewhat improving liquidity issues for large corporations, but SMEs have become more dependent on indirect financing such as bank loans. Tailored strategies according to the support target are necessary to prevent the SME crisis from spreading to the real economy."

He continued, "Swift restructuring is needed for chronic zombie companies or marginal firms. Please prepare thorough measures to prevent promising companies facing temporary management crises from being stigmatized as marginal companies and going bankrupt despite being profitable."

Yoo Dong-su, Democratic Party of Korea lawmaker

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