Red Light for SME Support... Financial Authorities and Banks Busy Preparing Countermeasures

Small and Medium Enterprises Increasing Loan Sizes Still Face Management Instability

[Asia Economy Reporter Park Sun-mi] As small and medium-sized enterprises (SMEs) that increased their loan volumes in response to COVID-19 continue to express management instability, financial authorities are accelerating efforts to review the current status and risks of corporate finance, while banks are moving quickly to align with these policy efforts.

According to financial authorities and the financial sector on the 2nd, Do Gyu-sang, Vice Chairman of the Financial Services Commission, will hold a meeting on the morning of the 3rd to review the current status and risk factors of corporate finance and take measures to understand and respond to the difficulties faced by companies struggling due to the spread of COVID-19. This meeting convened by Vice Chairman Do is linked to the extension of loan maturities and soft landing measures for small business owners and SMEs, and is being held amid concerns about economic uncertainty despite the expansion of SME loan volumes.

The banking sector is also taking various supportive gestures for small business owners and SMEs in line with the policy direction of the financial authorities. Woori Bank recently signed an agreement with Naver Financial, the financial subsidiary of Naver, to actively cooperate in developing digital convergence products that combine finance and platform technology to support small business owners, as well as providing platform financial services. KB Financial Group has significantly expanded its SME financial support products, and Hana Bank is focusing on efforts to expand support through collaboration with guarantee institutions.

A financial sector official explained, "With household loans restricted by regulatory measures and small business owners and SMEs still struggling despite COVID-19 financial support, everyone is releasing related support measures to participate in the government's innovative SME promotion policy."

According to the Bank of Korea, as of the end of January, the outstanding SME loan balance was KRW 811.2 trillion, an increase of 6.6% compared to the previous month. This figure is 1.2 percentage points higher than the 5.4% growth rate recorded in January last year.

The market expects the SME loan volume to continue increasing for the time being. Although the number of small business owners and SMEs managing COVID-19 damages through loans has increased, concerns about the perceived impact and uncertainty of COVID-19 remain high. The banking sector’s focus on corporate finance to secure profitability amid tightened household loan regulations is also contributing to the expansion of SME loans.

Experts point out that comprehensive support measures considering SMEs’ response strategies and policy demands need to be urgently prepared. This is because the perceived business conditions of SMEs and small business owners continue to deteriorate despite expanded COVID-19 support.

In fact, according to the Korea Federation of SMEs, the SBHI (Small Business Health Index), which reflects the business performance of SMEs, recorded 65.9 in January, down 0.1 points from the previous month, and the BSI (Business Sentiment Index) for small business owners also fell by 15.8 points to 35.8. A survey conducted by the Korea Institute for Industrial Economics and Trade targeting 808 small export companies showed that about 91% of respondents reported a decrease in exports.

Most small export companies expect COVID-19 to continue for more than a year. This indicates a high risk that small-scale, vulnerable export companies with low competitiveness may face market exit and employment reductions.

Song Young-chul, a research fellow at the Korea Institute for Industrial Economics and Trade, advised, "While preparing for the prolonged COVID-19 situation, it is necessary to find effective measures to lead a clear export recovery for our SMEs in the future."

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