[2021 National Audit] Largest Ever Default on SME Policy Funds Amid Prolonged COVID-19 Pandemic

Small and Medium Business Corporation Policy Fund Loans
Last Year, Accident Amounts Surged and Recovery Rates Declined

It has been confirmed that the default rate of policy funds for small and medium-sized enterprises has increased due to concerns about insolvency amid the prolonged COVID-19 pandemic. Photo by Asia Economy DB

[Asia Economy Reporter Kim Heeyoon] It has been confirmed that the default rate of policy funds for small and medium-sized enterprises (SMEs) has increased due to concerns about insolvency amid the prolonged COVID-19 pandemic. Last year, the Korea SMEs and Startups Agency (KOSME) directly lent policy funds to SMEs amounting to 560 billion KRW, marking the highest level in five years.

According to the "Status of SME Policy Fund Loans and Default Amounts" submitted by KOSME to Lee Juhwan, a member of the National Assembly's Industry, Trade, Energy, SMEs and Startups Committee from the People Power Party, the total default amount over the past five years reached 2.42 trillion KRW, with 14,692 companies having their contracts terminated. Policy fund loans are directly provided by KOSME to SMEs, evaluated primarily on technology and business feasibility rather than collateral, offering low-interest loans.

The default amount increased annually from 434.5 billion KRW (1,905 companies) in 2017 to 484.6 billion KRW (3,260 companies) in 2018, 518.8 billion KRW (3,116 companies) in 2019, and 568.3 billion KRW (3,661 companies) in 2020. This year, the amount recorded up to August was 413.8 billion KRW.

The region with the highest default amount was Gyeonggi Province at 542 billion KRW, followed by Gyeongbuk at 283.1 billion KRW, Seoul at 280.8 billion KRW, Gyeongnam at 274.8 billion KRW, and Busan at 181.7 billion KRW.

The recovery rate sharply declined. In 2017, 93.6 billion KRW was recovered, with a recovery rate of 21.5%, but it dropped to 20.3% (98.6 billion KRW) in 2018, 17.2% (89.4 billion KRW) in 2019, and only 11.5% (65.7 billion KRW) last year.

As the balance of direct loans increased, the amount of bad debt also rose annually. The balance of direct loans grew from 9.4849 trillion KRW in 2017 to 10.2225 trillion KRW in 2018, 10.7754 trillion KRW in 2019, and 12.9664 trillion KRW in 2020. This year, it was confirmed to be 14.3801 trillion KRW up to August.

Assemblyman Lee Juhwan stated, "Due to the economic downturn and the prolonged COVID-19 pandemic, companies are facing difficult management situations, making loan recovery challenging and increasing loss rates. With the expansion of policy fund loans last year and this year, losses are expected to rise as well. Therefore, urgent measures to reduce losses are needed to ensure the stable operation of the fund."

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