Auto Parts Companies: "Government Financial Support That Assesses Creditworthiness Is Useless"

[Asia Economy Reporter Suyeon Woo] "Even if the government provides as much as 100 trillion won in financial support, it is a 'pie in the sky' for companies with low credit ratings or insufficient collateral capacity. Practical support is needed for companies that have reached their limit." (Chairman of Company A's partner association)

"Even when requesting help from policy banks, frontline staff at branches do not even entertain companies without creditworthiness. No matter how much the policy banks increase the guarantee limits, it is frustrating because companies in urgent need cannot get loans." (Finance Manager of Company B)

At the 'COVID-19 Response FAM (Finance Automobile Meeting)' held on the 7th in the main conference room of the Korea Automobile Industry Association, representatives of automobile parts companies expressed these concerns. The event was organized by the Automobile Industry Federation to invite government financial institution officials and explain the government's '100 trillion won financial support package' to domestic parts industry stakeholders.

On the 7th, Jeong Manki, Chairman of the Korea Automobile Manufacturers Association, is giving a greeting speech at the 'COVID-19 Response FAM' held in the conference room of the Korea Automobile Industry Association.

At the event, an official from the Export-Import Bank introduced an emergency financial support plan worth 20 trillion won for export-import and overseas expansion companies. This plan consists of an extension of existing loan maturities amounting to 11.3 trillion won and a new liquidity support program of 8.7 trillion won. The detailed programs include extension of existing loan maturities, new liquidity loans, preferential financial guarantees, small and medium-sized speed-up export-import loans, emergency management fund loans, and export-based loans, among various financial support measures.

However, automobile parts companies, already suffering from chronic financial difficulties compounded by the COVID-19 pandemic, pointed out that even if the government releases more than 100 trillion won in support, they cannot receive practical benefits on the ground. Although the government promised to provide funds to help struggling marginal companies, the actual response at bank counters is that loans are difficult for parts companies with low credit ratings.

In response, the Export-Import Bank official explained, "Programs such as the small and medium-sized speed-up loan do not require formal credit evaluations or collateral," adding, "Support is provided based solely on the previous year's financial statements."

However, in reality, many automobile parts companies do not meet the support criteria even based on the previous year's financial statements. This is because a significant number of parts companies have been suffering from chronic deficits and financial difficulties even before the COVID-19 crisis. At the event, urgent opinions were voiced, including the need for exemption of liability for bank branch staff, resolution of debt reduction issues with foreign banks, and removal of company-specific limits in various government support programs.

The Export-Import Bank official stated, "The government's policy is to exempt branch staff from liability unless there is intentional misconduct," and expressed the position that the government cannot force foreign banks to adjust their loans.

Jeong Manki, chairman of the Automobile Industry Federation, who hosted the event, said, "Although the government has prepared a 100 trillion won financial support program due to the impact of COVID-19, there is concern that companies may not be able to utilize it due to information asymmetry between financial institutions and companies," adding, "I hope that through this event, communication will improve so that companies can fully utilize the government's financial support programs."