Loan problems of the companies at Kaesong complex

About 950 billion won (860 million U.S. dollars) out of the 1.2 trillion won (1.1 billion dollars) loans that the 123 companies at the Kaesong Industrial Complex borrowed from banks is due this year while their operation has stopped due to the withdrawal workers from the inter-Korean complex. With certain companies deferring interest payment, signs have shown that the financial difficulties felt by the businesses at the Kaesong complex are likely to grow serious.

The Financial Supervisory Service submitted a document on Monday about the loans and delinquency status of the companies at the Kaesong complex to Rep. Kim Jae-gyeong of the ruling Saenuri Party.

Based on the document, the companies have borrowed a total of 1.201 trillion won (1.09 billion dollars) at annual rates of 1.9 to 15 percent from banks, including Kookmin, Woori, Shinhan, Hana and Korea Development banks. The companies will likely have difficulties in returning the debt as 950.5 billion won, about 80 percent of the entire loan, is due this year.

Though the Financial Supervisory Service has advised the banks to restrain collecting the loans from the businesses at the complex, it can hardly resolve the issue of the punitive interest rate system that exacerbates the financial status of the companies.

For example, one company borrowed 2 billion won (1.8 million dollars) at an annual interest rate of 12 percent from the Korea Development Bank. But the company could not keep up with the high interest rate, and now has 20 million won (18,000 dollars) overdue interest since March. The bank currently applies an annual rate of 17 percent of overdue interest to the company. With no collateral and a low credit rating, the company has to pay higher interest than other companies.

A source from the banking industry said, “For those companies that pay interest by the end of this month, the maturity date of the principal will be extended.” Other companies at the Kaesong complex will also have to pay back loans with high interest rates ranging between 9 and 14 percent a year within this year.

Two companies at the complex took out the economic cooperation fund sponsored by the Inter-Korean Cooperation Fund, with low annual interest rates of 1.9 to 5 percents from the Export-Import Bank of Korea, but they are behind in their dues. Overdue loans from the economic cooperation fund amount to nearly 5.8 billion won (5.2 million dollars).

Banks are now providing loans or extending the loan maturity dates for the companies at the Kaesong complex. Nevertheless, these can hardly be fundamental solutions amid the total loan reaching 1 trillion won (905 billion dollars). Rep. Kim Jae-gyeong said, “Rather than expanding loans, which will put more burden on the companies, it is necessary to compensate their losses by using the Inter-Korean Cooperation Fund.”

legman@donga.com