Middle and Small Enterprises May Have Difficulty Paying Off Debts

Because the maturities of approximately 70 percent of all bank loans for middle and small enterprises are coming due this year, there are concerns for anxiety in the finance market. Due to the stagnation, many companies are not able to pay off their debt.

Accordingly, the government and the financial field are hastening the restructuring of small and middle enterprises, and it is believed that many will be closing.

--160 trillion won in loans of middle and small enterprises will mature this year

According to the Financial Supervisory Service and banks yesterday, as of the end of last year, domestic banks’ balance for loans to middle and small enterprises came to be some 236.4 trillion won, and a total of 159.8 trillion won, or approximately 67.6 percent, will be maturing this year.

This figure leaps over the 105 trillion won in household loans maturing this year. In addition, with the stagnation and surging raw material prices, middle and small firms are going through difficulties, and it looks like many will not be able to pay back in time.

As the risks of loaning to middle and small enterprises become higher, banks are becoming reluctant to lend new funds. The loans for small and middle enterprises increased by a monthly rate of 3.4 trillion won in 2002, but coming into 2003 fell to a monthly 2.7 trillion won increase and a monthly 2.3 trillion for this year up to March.

Chung Moon-gun, managing director of the Samsung Economic Research Institute, pointed out, “The difficulties in middle and small enterprises are deepening, and if banks are going to collect all at once, these enterprises will collapse, leading to increasing bad debts and insecurity in the finance market.”

--Financial problems of middle and small firms are not easily solved.

The financial problems of middle and small firms do not show hints of getting better.

According to the “Trend of Middle and Small Manufacturers in March,” the Industrial Bank of Korea announced after taking research on 2,064 middle and small manufacturers that 31.1 percent of the manufacturers surveyed answered that their financial conditions worsened from the month before. To this same question, 35.0 percent had answered in January, and 32.8 percent in February, falling by each month, but still is passing 30 percent as of the third month.

The number of venture enterprises is decreasing as many are shutting down from management difficulties. According to the Small and Medium Business Administration, those registered as venture enterprises numbered to be 7,464 as of March, decreasing by 238 from the end of last year.

This figure fell by 3,928 from the end of 2001 (11,392), when the number of venture firms was at its highest, and coming into this year, 95 had decreased in January, 66 in February and 77 in March.

The average rate of operation of middle and small firms is not passing the 60 percent mark. The results after examining the average operation rate of production equipment that the Korea Federation of Small and Medium Business announced showed that the operation rate of middle and small manufacturers was 68.6 percent in March, maintaining the 60 percent level for the fourteenth month since February of last year.

--Many middle and small enterprises are facing an inevitable restructuring

The government and financial circles hold the same line that recovering all middle and small enterprises is impossible.

At a regular briefing held on April 22, Deputy Prime Minister and Finance-Economy Minister Lee Hun-jae said “It is hard to continue in these conditions, and a restructuring is necessary as a back up. After examining into the actual conditions, we will reflect the opinions of the Korea Federation of Small and Medium Business and banks.”

The Finance-Economy Ministry will ask a public opinion poll firm to research into the management conditions of 5,000 middle and small enterprises next month. In June, when the research results show up, middle and small enterprises with competitiveness will be supported in extending their loan maturity and increasing credit guarantee while those without a chance of revival will be suspended from extended maturity and be closed, changing into a different business or merging with an existing business.