Banks rush to offer loans to SMEs
There is growing skepticism over recent moves by financial regulators and banks to focus on small- and medium-sized enterprises (SMEs) to match President-elect Park Geun-hye’s corporate policy.
Most major banks, including Kookmin, Woori, Shinhan and Standard Chartered, announced plans last month to increase loans for innovative and promising small firms while charging low interest rates.
Financial regulators are also preparing to expand support programs for small businesses. The Financial Services Commission recently called a meeting of executives from banks and state-run financing institutions to discuss measures to assist small firms.
The Financial Supervisory Service said it has also asked banks to increase fresh loans to SMEs by 30.8 trillion won this year as well as ease their qualification screening for recipients of asset-backed loans.
“It is not hard to imagine that more loans to small firms, whose financial health is not as stable as bigger ones, will result in a rise in loan default rates. That means banks will be put in big trouble if things go wrong,” a bank official said, asking not to be named. “It’s a risky bet, but we have no choice but to follow directives from regulators.”
During a visit to the Small and Medium Business Administration (SMBA) on Jan. 26, Park said she will be a “president for SMEs”
It was her first official talk with members of the business community since being elected and it was widely viewed as a symbolic gesture intended to show her commitment to building a “fairer” relationship between conglomerates and smaller firms.
Chaebol heads were dismayed that Park first visited an organization for small firms, not one for the nation’s large conglomerates. Some officials at the Federation of Korean Industries that represents the chaebol, said it went against a time-honored custom.
The presidential transition team selected a small firm not tied to a conglomerate as the chief coordinator for Park’s Feb. 25 inauguration ceremony in front of the National Assembly building in Seoul. A group of some 15 small firms will set up the stage and decorate the area.
“The reason we chose small firms instead of big ones is that it matches the new government’s philosophy,” said Kim Jin-sun, who heads the inauguration steering committee.
Small firms have welcomed Park’s move to ensure fairer competition between conglomerates and SMEs, but are skeptical about the effects of the proposed support programs.
“President Lee Myung-bak has also initiated various measures to help SMEs, but many firms still remain uncared for,” said Kim Kwang-seon, chairman of the Korea Association of Industry, Academy and Research Institutes. “About 99 percent of Korean firms are small-sized but they employee 88 percent of Koreans. That’s why they deserve more attention.”
Kim suggested that the government and banks create a system in which troubled firms can get help when they really need it. “It is meaningless to increase loans for SMEs because the barriers will still remain high for those in need,” Kim said.
SMBA officials echoed Kim’s concerns.
“In the past, financial firms extended more loans to companies when the economy was good. However, they called them in when the economy turned worse. Their first target was always SMEs,” an SMBA spokesman said. “Such a discriminative policy is really discouraging for small firms. We hope Park will address this issue.”
SMEs have long urged the government to elevate the status of the SMBA. They claim its head, currently at vice ministerial-level, should be given minister-level status.
They have demanded Park create a presidential committee that exclusively deals with SME-related affairs and give it the power to independently submit bills to the National Assembly.