San-eun and 5 Major Banks Offer Low-Interest Loans to Mid-Sized Companies in New Growth Sectors
KDB and 5 Major Banks Reduce Interest Rates for SMEs with Sales Decline
'Rapid Support Program' Also Strengthens Eligibility and Benefits
A financial support program providing 11 trillion KRW starting in April will offer preferential loan interest rates to mid-sized companies aiming to enter new industries and special programs to reduce interest rates for small and medium-sized enterprises (SMEs) experiencing sales declines. Policy financial institutions such as Korea Development Bank and Industrial Bank of Korea, along with the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), plan to collaborate to provide meticulous support tailored to corporate needs.
On the 31st, the Financial Services Commission announced that from May 1, it will launch financial support programs totaling over 11 trillion KRW, including preferential loan interest rate programs for mid-sized companies seeking to enter new industries. This program is a follow-up measure to the "Customized Corporate Financial Support Plan" worth 76 trillion KRW plus alpha (α) announced on February 15 and the "Financial Support Measures for Vulnerable Sectors to Enhance Livelihood Vitality" discussed at the "Emergency Economic and Livelihood Meeting" on the 27th of last month.
First, the financial sector will support 6 trillion KRW for a dedicated low-interest loan program for mid-sized companies entering new growth sectors. Korea Development Bank and the five major banks will launch, for the first time, a low-interest loan program exclusively for mid-sized companies that are newly entering or expanding investments in new growth sectors. Eligible companies are those producing or utilizing items listed in the ‘Innovation Growth Joint Standards,’ which consist of 284 items across nine high-growth potential themes. Loans will be provided with a preferential interest rate of 1 percentage point (P) lower than the existing rate, up to 150 billion KRW per company, for facility investments, research and development (R&D) funds, and operating funds.
Not only mid-sized companies directly producing and utilizing items under the 'Innovation Growth Joint Standards' but also upstream and downstream companies related to these items can broadly benefit from this program. Korea Development Bank and the five major banks have established an internal information system to determine whether items fall under the Innovation Growth Joint Standards or verify individually through the 'Innovation Growth Joint Standards Manual.'
Kim Ju-hyun, Chairman of the Financial Services Commission, is delivering opening remarks at the "Customized Corporate Finance Support Meeting" held on the 15th at the Bankers' Hall in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@
IBK Industrial Bank and five other banks will also launch a special program worth 5 trillion KRW to reduce financial costs for SMEs experiencing sales declines. This measure aims to revitalize SMEs by reducing interest burdens for one year for companies that are operating normally, such as generating operating profits, but face heavy interest burdens. For loans to SMEs in normal transactions verified through credit ratings and financial information, where the loan interest rate exceeds 5.0%, borrowers can apply once to receive a reduction in the loan interest rate to 5% for up to one year (with a maximum reduction capped at 2 percentage points).
Eligible companies must meet conditions including ▲having a credit rating of 7 or higher on the Financial Supervisory Service’s standard 10-grade credit rating system ▲2023 annual sales lower than 2022 annual sales ▲interest coverage ratio below 1 (excluding companies with a ratio below 1 for three consecutive years) ▲not being capital impaired ▲debt ratio below 400% ▲and having ‘operating profit > 0.’ Even if all conditions are met, companies that are insolvent or subject to restructuring are excluded.
Eligible loans are those with interest rates of 5.0% or higher held by eligible companies. Policy low-interest loans, loans with separately determined interest rates, credit line loans, and delinquent loans are excluded. When SMEs apply for the program at the bank, the bank verifies eligibility, and the applicant can choose to apply the interest rate reduction immediately for one year or from the start of the loan maturity extension for one year.
Additionally, the banking sector will strengthen joint rapid financial support programs. Since 2008, banks have operated rapid financial support programs to prevent excessive contraction of SME credit in response to market conditions. This system allows the main creditor bank to evaluate the industrial, operational, managerial, financial risks, and cash flow of SMEs and, if the company is temporarily facing liquidity risks but is capable of normal management (credit risk rating B), to grant a grace period for loan repayment and reduce loan interest rates upon the company's request.
From April, the support will extend not only to companies facing temporary liquidity risks but also to those expected to face temporary risks. Even if a company is normal but has a sales decrease of 10% or more compared to the previous year or negative cash flow, and the main creditor bank judges that the company is likely to receive a B rating upon re-evaluation of credit risk, it will be included in the support target.
Especially for companies applying this year, loan interest rates will be significantly reduced for one year to the level of major commercial banks’ funding rates (currently around 3%) to facilitate rapid and certain normalization. Nam Dong-woo, Director of Industrial Finance at the Financial Services Commission, explained, "We will promptly implement the customized corporate financial support plan worth 76 trillion KRW plus alpha (α) announced last February to provide practical help to companies in the field and continuously monitor support performance."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
