"Need for SME Response Measures to Next Year's Monetary Policy Changes"

Announcement of '2022 Policy Response Measures for the SME Financial Market'

Photo by Getty Images Bank

[Asia Economy Reporter Kim Cheol-hyun] A claim has emerged that it is necessary to assess the factors determining tight and loose monetary policies, forecast the difficulties faced by small and medium-sized enterprises (SMEs) under different scenarios, and devise appropriate countermeasures accordingly. Jin Park, Associate Research Fellow, and Yongwan Won, Researcher at the Korea Institute of Startup & Entrepreneurship Development (President Odongyun), announced a report titled "2022 SME Financial Market Policy Response Measures" (SME Focus No. 21-23) on the 19th containing these details.

Monetary policy is a very important issue for SMEs, which are sensitive to interest and production costs. Recently, amid ongoing global inflation concerns due to supply chain disruptions, South Korea has indicated a base interest rate hike, while the United States has suggested a reduction in liquidity supply. However, as the monetary policy stance could rapidly change depending on the COVID-19 spread, the future tightening or loosening of monetary policy is likely to be decided by considering inflation, base interest rates, and other factors.

Accordingly, this report identified inflation, loan maturity extensions, interest repayment deferrals, base interest rates, and the COVID-19 situation as factors determining monetary policy. First, considering rising inflation, the end of loan maturity extensions and interest repayment deferrals, and base interest rate hikes, if a tight monetary policy is implemented, the pressure from increased interest and production costs is expected to expand the possibility of SME insolvency. Given that SMEs mainly rely on loans for financing, the rise in loan interest rates following base rate hikes directly translates into higher interest burdens. Moreover, SMEs have a weaker ability than large corporations to pass on raw material and labor cost increases.

Even if a loose monetary policy is implemented considering stabilized inflation, continued loan maturity extensions and interest repayment deferrals, and a freeze on base interest rates, SMEs lacking credit and collateral capacity are expected to continue facing difficulties in financing due to low loan accessibility. Since loans vary according to credit and collateral capacity, SMEs with low credit ratings are likely to be denied sufficient financing opportunities.

Therefore, Jin Park and Yongwan Won proposed differentiated countermeasures according to monetary policy. Under tight monetary policy, they emphasized the need for policies that alleviate interest burdens by developing SME refinancing loan products utilizing policy financial institutions such as the Korea SMEs and Startups Agency, Korea Credit Guarantee Fund, and Korea Technology Finance Corporation, while expanding restart support funds to assist SMEs struggling to survive through bankruptcy and rehabilitation processes.

Additionally, under loose monetary policy, they argued for policies to improve the credit evaluation system for SMEs to support loans for undervalued SMEs and to relax profit-sharing and growth-sharing loan conditions to enhance loan accessibility for SMEs with weak collateral capacity.

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