FSC head says SMEs will be cut slack on loans

Finacial Services Commission Chairman Eun Sung-soo,left, attends a meeting with representatives of SMEs at a Korea Federation of SMEs event in Yeouido on March 29. [YONHAP]

Financial Service Commission (FSC) Chairman Eun Sung-soo said the government will try to minimize the pandemic's impact on credit scores for small companies.

Eun said the government will ask banks for cooperation when they assess the credit scores of small and medium enterprises (SMEs) struggling through the Covid-19 pandemic.

Even if SMEs' credit scores drop, the government will help SMEs borrow at good interest rates.

“I understand there are growing concerns by SMEs on seeing their credit scores being lowered due to revenue declines last year,” Eun said during a meeting with SME representatives on Monday during the opening of a Korea Federation of SMEs financial support center.

Eun stressed the government's recent support for SMEs.

“Since April, the financial industry has extended loan maturities to help companies overcome the Covid-19 crisis,” Eun said.

The FSC chairman promised consulting services for SMEs and self-employed businesses people worrying about loans.

He said financial companies will be encourage to increase their loans to businesses rather than lending money for residential real estate purchases.

“Until now, banks were more focused on mortgages, which were considered to be safe. As such, mortgages outstanding now amount to over 1,600 trillion won,” Eun said. “Banks’ capital shift toward SMEs is inevitable."

A Bank of Korea report earlier this month found that despite government efforts, banks have been reluctant to lend to SMEs.

Last year, 40 percent of loans borrowed by SMEs were from nonbanking financial companies such as savings banks, which in Korea are consumer finance companies.

SME borrowing from banks grew 12 percent to 832.6 trillion won in 2020. However, borrowing from non-financial companies grew 29 percent to reach 251.2 trillion won.

Interest rates on loans from non-banking financial companies are some 1 to 3 percentage points higher than from banks.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]