Liquidity crunch a growing concern for SMEs

Korean small and medium enterprises (SMEs) are suffering from worsening liquidity amid a persistent business slump, data showed yesterday, raising the specter of chain-reaction failures by marginalized firms.

As of September last year, 612 listed companies had a combined 52.2 trillion won ($46.7 billion) in cash and cashable assets, down 3.4 percent from nine months earlier, according to the data by the Korea Exchange.

Cashable assets cover cash, cash equivalents and other short-term financial products.

SMEs led the decline, indicating that they were suffering from deteriorating liquidity conditions, hurt by a mixture of unfavorable conditions, it said.

The drop in their liquidity results from a longstanding economic slump and difficulties they face in taking out bank loans or selling debt, said the bourse operator.

The Korean economy, Asia’s fourth-largest, grew 3.6 percent in 2011 from a year earlier, down from the previous year’s 6.2 percent expansion and below the central bank’s estimate of 3.8 percent.

Banks are also reluctant to lend money to high-risk smaller companies. Outstanding bank loans to SMEs came to 462.9 trillion won as of November, up a mere 3.2 percent from a year earlier.

The figure contrasts with a 26.6 percent surge in bank loans to large companies, which stood at 125.4 trillion won at the end of November.

Market watchers said SMEs are also having difficulties selling new shares or bonds amid tighter market conditions.

“Korea’s low economic growth is expected to last for a long period, which will inevitably put cash-strapped SMEs in a tight spot,” said Kwon Soon-woo, a senior researcher at Samsung Economic Research Institute.

In addition, major shipping companies, builders and shipyards have seen their liquidity drop sharply during the period, according to the bourse operator.

Yonhap