Despite Suffering from COVID-19 Damage... SMEs Cautious of Banks

Amid a sharp decline in cargo imports from China due to the recent novel coronavirus impact, on the 6th, the designated warehouse at Incheon Airport Customs in Yeongjongdo, Jung-gu, Incheon, showed a sparse appearance, unlike the usual days when it was filled with cargo. / Yeongjongdo - Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Moon Hyewon] Small and medium-sized enterprises (SMEs) affected by the novel coronavirus infection (Wuhan pneumonia) are keeping quiet due to concerns about financial disadvantages such as bank collection if the damage is made public. As direct and indirect damages are expected to occur in earnest from this week when the Chinese New Year holiday ends, not only Chinese import-export companies but also domestic self-employed and small business owners, the anxiety within the SME sector is intensifying.

According to the Ministry of SMEs and Startups and the Small Enterprise and Market Service on the 10th, the number of damage reports and inquiries related to the novel coronavirus from domestic and overseas SMEs and small business owners received within one week after this year’s Lunar New Year holiday has exceeded 550 cases. A Ministry of SMEs official explained, "The main contents include financial support, expanded interest benefits, loan repayment deferrals, and loan expansions."

Since the 3rd, the Ministry of SMEs and Startups has been establishing and operating a "hotline" to identify the status and difficulties of Korean SMEs and small business owners operating not only in Wuhan but also in major regions such as Hubei Province, Shandong Province, and Guangdong Province through local Korean associations in China. Based on this, daily regular briefings related to the novel coronavirus have been held every afternoon since today, with strict confidentiality maintained regarding company names. A Ministry official explained, "If company names are exposed, banks immediately start collection procedures, so local companies strongly demand anonymity due to concerns about secondary damage."

Regarding this, a commercial bank official said, "If the company shows abnormal signs such as failing to meet payment deadlines, the credit finance department first monitors the situation, so collection procedures usually begin only after 2 to 3 months of monitoring." Contrary to SMEs’ concerns, immediate collection is not conducted.

However, a representative of an SME expressed discomfort, saying, "Being subject to monitoring itself is unsettling," and added, "Financial institutions’ loan recovery measures to minimize their own damage have frequently occurred during crises." While banks are also providing support to companies affected by the novel coronavirus, the anxiety felt by companies remains on the other side.

According to the Ministry of SMEs and Startups, during the MERS outbreak in the first half of 2015, the average sales of SMEs, small business owners, and traditional markets plummeted by an average of 26% compared to the previous year. Despite continuous financial support from the government and financial institutions for small business owners struggling with reduced consumer sentiment and sales decline, SMEs and small business owners took a direct hit.

Experts say that expanding government-level financial support measures is urgent. Cheon Yongchan, Senior Research Fellow at Hyundai Research Institute, said, "It is unlikely that the government will pressure banks for financial support due to concerns about 'government-controlled finance,'" but added, "The fundamental solution is for the government to provide guarantees or for export-import banks to actively increase support for companies operating locally." Nasu-mi, Research Fellow at the Korea Institute for Industrial Economics & Trade, said, "It is also worth considering actively utilizing the 'Emergency Management Stabilization Fund,' a financial support policy system for SMEs that can be used in crisis situations such as natural disasters."