[Q&A] "Support SMEs Facing Temporary, Not Structural, Liquidity Issues to the Maximum"

Policy loan product with fixed or variable interest rate switching every 6 months depending on interest rate conditions
Saechulbal Fund, a system for people in difficulty

Kim Ju-hyun, Chairman of the Financial Services Commission, is giving a briefing on the Financial Services Commission's work report at the Government Seoul Office in Jongno-gu, Seoul, on the morning of the 8th.

[Asia Economy Reporter Song Hwajeong] The government has announced an additional plan to supply 6 trillion won worth of policy loan products for small and medium-sized enterprises (SMEs) as part of a 125 trillion won financial livelihood stabilization measure. All SMEs can receive support if they wish, and the required funds will be secured through self-financing by the Korea Development Bank and the Industrial Bank of Korea.

On the 8th, Financial Services Commission Chairman Kim Joo-hyun summarized the briefing held prior to the presidential Financial Services Commission work report in a Q&A format.

There are opinions that restructuring of marginal companies should be carried out simultaneously while supporting SMEs. When supporting SMEs, it seems necessary to distinguish whether it is a temporary crisis or if they are surviving through previous financial support. What is the plan for selection?

It is important to distinguish whether it is a temporary liquidity problem or a structurally difficult repayment situation. We are trying to provide as much support as possible to companies experiencing temporary liquidity difficulties. Regarding restructuring, according to the system, each financial institution is required to handle problematic companies on their own and conducts credit risk evaluations once a year. Through such a system, problematic companies are preemptively restructured; support is provided where possible, and companies that can be saved through evaluation are preserved, but companies that cannot be saved follow the necessary procedures.

Regarding debt adjustment for small business owners, there continues to be opposition from financial companies and local governments. What is your view on this?

Currently, discussions are ongoing among the financial sector, guarantee institutions, the Ministry of SMEs and Startups, and local governments. Looking at the recent situation, promotion for accurate understanding of the system has been insufficient. The operational plan for the Small Business New Start Fund has not been finalized, and only a few basic points have been presented. Discussions are being held together with regional citizen guarantee funds, local governments, and the Ministry of SMEs and Startups. Through this process, misunderstandings are expected to be resolved as the system becomes better understood.

Aside from the introduction of the corporate growth collective investment vehicle, I understand that the Financial Services Commission is also promoting a privately-led mother fund. What is the progress?

Rather than the government putting in a lot of funds and centrally reallocating resources and managing investments, it is more appropriate to reduce government finances as much as possible and increase the proportion of private sector selecting and managing investment targets. How this will be done specifically is still under discussion.

Which institutions will launch the 6 trillion won fixed-rate policy loan products for SMEs, and what about the budget and target companies?

At the beginning of the interest rate hike, variable rates were cheaper, so companies chose variable rates, but as difficulties increased during the rate hike period, fixed-rate policy loan products are being supplied. The funds are prepared by the Korea Development Bank and the Industrial Bank of Korea using their own capital without budget input. All SMEs can benefit from the support. New applicants as well as companies that have applied for other products before are eligible. Therefore, the support target is broad. Since interest rates may fall later, options to switch back to variable rates are also being considered.

What is the direction for improving the virtual asset market?

Currently, 13 bills related to virtual assets are pending in the National Assembly, and the Financial Services Commission is also preparing internally. The basic model is based on the European Union (EU) and Japan's related laws, supplemented to fit Korea's characteristics. Virtual assets involve many complex issues, so it is difficult to simply state a direction. Various options are being reviewed internally, and once a plan is formed, it will be publicized. There are opinions that regulations should be tightened and others that they should not be too strict, so it is expected to be a huge controversy once publicized. Through the opinion-gathering process, it is expected that a system that Korea can agree on will be developed.

You emphasized cooperation with related agencies, but the Bank of Korea is trying to control inflation through interest rate hikes while the Financial Services Commission is lowering rates. Isn't this contradictory?

The policy support by the Financial Services Commission is basically targeted at vulnerable groups. The targets supported through policy finance by the Financial Services Commission are very limited. They are vulnerable groups that lack the capacity to absorb interest rate hikes themselves. It should be understood that policy consideration is given to these essential parts of Korean society.

Regarding the New Start Fund, from the perspective of local governments, 60-90% debt relief is inevitably a burden. What is your view?

For example, when a company becomes insolvent and enters court receivership, there are many benefits such as debt relief and protection from creditor collection actions. Questions may arise as to why not all companies go into court receivership despite these benefits. If this question can be answered, the issue of moral hazard will be largely understood. Court receivership is not something anyone can apply for; it is only possible in truly difficult situations.

Also, the benefits are not free. There are significant disadvantages. Who would want to do business with a company under court receivership? That is why, despite the benefits, companies avoid court receivership. Some ask why a debt relief system is created when there are companies that repay debts faithfully. It is to maintain the social system. It is not good for society and the country to immediately throw people who cannot repay debts onto the street and bankrupt them. Therefore, other countries also provide various debt adjustment methods. The same applies to individuals. The operational plan for the New Start Fund has not been finalized. Debt relief is not newly created this time; there are already debt relief systems in courts and the Credit Recovery Committee. There are standards, and this system intends to follow those standards.

If debt relief is not provided, financial institutions naturally benefit. The purpose of creating the New Start Fund is to quickly resolve the situations of people burdened by debt and difficulties. It is not to increase the relief rate compared to other rehabilitation systems but to operate within the recognized scope of other rehabilitation systems. Discussions are ongoing with the financial sector, the Korea Credit Guarantee Fund, and others, and concerns about moral hazard are expected to be largely resolved. The New Start Fund is not being implemented unilaterally but through discussions. I hope people understand that the main purpose of this system is to help those in difficulty.

The reshaping of the financial industry for digital innovation seems to imply the separation of banking and commerce. Is this with the relaxation of the separation of banking and commerce and the exclusivity principle in mind?

Basically, the separation of banking and commerce is important and meaningful. However, policies must adapt to changing conditions. Everyone agrees that digital transformation and rapid technological advances such as artificial intelligence (AI) due to the Fourth Industrial Revolution are happening quickly. If we cannot keep up with this pace of change, it is like fighting a war with guns and swords while the opponent uses drones and advanced equipment. Therefore, if financial institutions want to enter new areas through digital transformation or advanced technologies, the system should be changed to allow this within manageable risk levels and without significant problems for consumers. In that process, if supplements to past principles such as the separation of banking and commerce are needed, they will be made.