Financial industry rallying to support SMEs
Changes include lower interest rates on loans, more financial support and a number of newly established or expanded departments designed exclusively to help companies of this size.
Standard Chartered Korea is among the banks that have recently joined the movement. It announced earlier this week that it will slash as much as two percentage points off its interest rates on loans for SMEs. To receive such benefits, the company merely needs to subscribe to one of the bank’s services, such as signing up for one of its debit cards, registering for Internet banking or agreeing to use its automated system for paying bills.
Additionally, companies recognized by the government for their green growth, job creation or hiring of physically or mentally handicapped employees will be granted even cheaper loans. A maximum of 500 billion won worth of discounted loans will be made available each year, it said.
Shinhan Bank has already lowered the maximum interest rate for corporate loans from 17 percent to 12 percent and is now developing a financial product exclusively for SMEs.
The state-owned Export-Import Bank of Korea (Eximbank) said it will finance 74 trillion won ($70 billion) this year, which is the largest amount the bank has ever allocated for SMEs, and that 60 percent of this, or 45 trillion won, will be provided in the first half.
Other banks are coming up with measures to help with loans and playing matchmaker by connecting SMEs with other resources or institutions that can expand their businesses.
KB Kookmin Bank, the largest bank in the country by asset, is developing a financial product that will encourage stronger business cooperation between SMEs and major conglomerates. It is also providing a matching service with other institutions including Korea’s main trade association.
Korea Exchange Bank earlier this month opened up a new department that solely focuses on supporting small businesses. The bank is planning to send its top officials to the Korea Federation of Small and Medium Business so they can come up with products that are more practical and address the difficulties such companies face.
“We are planning to increase our portfolio of small and midsize companies, which shrank when Lone Star was our majority stakeholder,” a KEB official said. “We plan to aggressively offer support to SMEs as this has recently surfaced as an important social issue.”
Some other lenders including Hana Bank have reorganized both their personnel and branches so they can offer better consulting and other services.
According to the Financial Supervisory Service (FSS), local banks lent SMEs 29.4 trillion won in fresh loans last year, up 2.4 trillion won from 2011.
By bank, IBK was the most assertive as it supplied 7.9 trillion won to small businesses. KB Kookmin Bank trailed with 3.9 trillion won. State-run Korea Development Bank (KDB) was the third-largest lender to SMEs at 3.3 trillion won, followed by Shinhan Bank at 2.8 trillion won.
SMEs are expected to get a boost this year thanks to the strong support of the incoming Park administration, according to an outlook by Bank of America Merrill Lynch. Park belongs to the ruling Saenuri Party.
The FSS believes local banks will lend SMEs an extra 1.4 trillion won this year, taking the total to 30.8 trillion won.
“We plan on strengthening our monitoring of banks that fall short in terms of providing small businesses with loans,” said an official at the agency.
SMEs have complained that there is an insufficient supply of loans, and that they usually have to fork out higher levels of interest than larger corporations.
According to the Bank of Korea, they paid an average rate of 5.21 percent as of November, the latest month for which data is available. For conglomerates, the equivalent rate was 4.81 percent.
“Even for collateralized loans, SMEs pay around one percentage point more,” said an official at the federation representing SMEs.
Meanwhile, some banks have cut back on their lending to small businesses. Citibank’s loans to SMEs shrank by 900 billion won last year, KB Kookmin Bank’s by 800 billion won and Woori Bank by 300 billion won.
By Lee Ho-jeong [email@example.com]