Poor Performance of Kian Fund... Calls for Reassessment of Support Criteria and Interest Rates (Comprehensive)

If the total borrowings criterion is relaxed to 300 billion won, 14 more companies can be added to the support 대상.

[Asia Economy Reporter Park Sun-mi] The Industrial Stabilization Fund (ISF), established with a scale of 40 trillion won, is at risk of becoming useless despite the extension of the support period due to its high entry barriers. Although it was launched to support industries affected by COVID-19, the fund has seen almost no actual utilization. In the National Assembly, there are calls for a review of the support conditions and loan interest rate calculations, considering the ISF’s original purpose of protecting jobs in key industries and their workers.

According to the National Assembly Budget Office on the 11th, as of May this year, only 587.5 billion won out of the total 40 trillion won in the ISF has been supplied. A total of 332.1 billion won was provided to Asiana Airlines and Jeju Air, and since November last year, the fund has started acquiring loan receivables from the cooperative support organization, acquiring 255.4 billion won in loan receivables by the end of May.

The fund targets industries that have a significant impact on the national economy, employment stability, and national security. Eligible companies are those with total borrowings exceeding 500 billion won and a significant impact on the national economy, or companies with 300 or more employees that have a significant impact on employment stability. When receiving support, companies must maintain the number of employees as of the end of May at a minimum of 90%, prohibit dividend payments to shareholders during the support period, and freeze the salaries of high-income executives.

Although the ISF support period was extended from the original end of April to the end of the year, the high application threshold and unattractive support levels are believed to have resulted in poor performance.

The Financial Services Commission states that support is possible through the deliberation of the Fund Management Committee even if the support requirements are not fully met, so there is no need for separate easing of conditions. However, the National Assembly Budget Office expressed the view that, considering the ISF is intended to support companies with difficulty in raising funds, a review of the support requirements and levels is necessary.

"There is a need to review whether the current requirements and support levels are appropriate"

Since many companies appear unable to apply for funds because they do not meet the requirements of ‘total borrowings of 500 billion won or more and 300 or more employees,’ it is necessary to assess the demand for fund support applications from companies and review whether the current requirements and support levels are appropriate. If the support scale is to be expanded, it is advisable to readjust the requirements to ensure predictability for companies.

KDB Industrial Bank also expects that if the total borrowing criterion is relaxed to 300 billion won, an additional 14 companies would be eligible for support, including 2 in aviation, 1 in shipping, 2 in machinery, 4 in automobiles, 3 in steel, and 2 in chemicals.

There are also criticisms that the interest rates on loans supported by the ISF are excessively high.

The National Assembly Budget Office diagnosed, "As of the end of May, the weighted average interest rate on ISF bonds was 0.97% (issued within a range of 0.72% to 1.45%), but considering that the loan interest rates for Asiana Airlines and Jeju Air are 7.6% and 2.98% respectively, the loan interest rates are higher than the funding costs." It added, "If companies that find it difficult to raise funds in the market want to receive support from the ISF, they face the burden of protecting jobs in key industries while bearing high loan interest rates, which may discourage them from seeking support from the fund."

It further emphasized, "Although the loan interest rate is determined as ‘market interest rate + α,’ if the ISF support conditions are similar to those of other COVID-19 livelihood and financial stability package programs and market interest rates, it raises the question of whether it was necessary to establish a separate ISF on the premise of employment retention efforts."

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