Corporate financial crunch gets serious

"We are not exaggerating. It is more difficult to obtain financing these days than the period under the IMF bailout program," said a financial official of a business group that is one of the nation's top 20 conglomerates.

He said only three of its 21 subsidiaries can issue corporate bonds. Even that isn't easy because they have to pay nearly 15 percent interest because of its poor credit rating, although the benchmark interest rate is at the 8 percent level.

The rest of the group's subsidiaries hardly can raise funds from banks, or the bond market or stock market. They have been heavily relying on mutual savings firms and other people's banks. With a series of troubles at mutual savings firms, however, even those banks closed their doors to corporate financing. He said that makes them even more difficult is that financial institutions tend to ask redemption of entire loan at maturity.

In fact, most domestic banks have suspended fresh loans in order to meet the BIS-based capital adequacy ratio. Some large mutual saving firms and merchant banks also abruptly stopped lending services or collecting loans in line with a series of financial troubles and to get ready for their own liquidity problems.

As of the end of November, loans offered by domestic banks to large corporations shrank by more than 130 billion won from the previous month. Their loans to the nation's four leading business groups such as LG and SK increased by 200 billion won, but they collected loans amounting to 300 billion won from smaller business groups. In corporate funding, rich groups get more and poor groups get less.

A research fellow at the Bank of Korea said that banks offered financing to companies through workout program. With the delay in financial restructuring, however, financial institutions are operating their fund conservatively, he said.

"The news that businesses will experience difficulties next year makes domestic banks more cautious on lending,¡± a corporate banking clerk at Kookmin Bank said. ¡°The confidence among the government, financial institutions and corporations is weakening, and they don't believe in each other."