Korea Federation of SMEs "Continuous Base Rate Hikes Will Put Sound SMEs at Risk of Bankruptcy"

Lee Chang-yong, Governor of the Bank of Korea. / Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Kim Bo-kyung] The small and medium-sized enterprise (SME) sector has expressed concerns over the Bank of Korea's historic 'big step' of raising the base interest rate by 0.5 percentage points for the first time ever, urging the establishment of proactive financial support policies.

The Korea Federation of SMEs issued a statement on the 13th, saying, "Domestic SMEs and small business owners, who were directly hit by the COVID-19 pandemic, have been surviving on debt until now," and added, "Production costs such as raw materials, exchange rates, and logistics have soared, leaving the situation still difficult."

It continued, "SME loans increased by 5.4 trillion won in June, marking the second-largest increase ever," and lamented, "Even if interest rates rise, they have no choice but to take out loans reluctantly."

The Federation noted, "As of the end of June, the total SME loan amount stands at 931 trillion won, of which loans to individual business owners reach 437 trillion won," expressing concern that "If interest rates continue to rise, even sound SMEs could face bankruptcy risks due to external factors, which would also deal a severe blow to the real economy."

Furthermore, it analyzed, "Although 60.3% of SME loans are secured loans, loan interest rates are often higher than those for large corporations, whose unsecured loans account for 66.5%," and stated, "The additional interest rates applied by commercial banks following the base rate hike have been rising faster for SMEs than for large corporations."

It emphasized, "The government must closely monitor the financial sector’s funding supply situation to ensure that commercial banks do not apply excessively unfavorable loan conditions to SMEs following this base rate hike, and actively implement financial support policies."

Finally, it said, "Regarding the loan maturity extension and interest repayment deferral measures scheduled to end at the end of September, we hope that alternatives will be promptly prepared, reflecting the severe circumstances of SMEs and small business owners."