1 sme policy financing in korea august 6, 2010 moon-hwan kim smba, korea
TRANSCRIPT
11
SME Policy Financing in SME Policy Financing in KoreaKorea
August 6, 2010August 6, 2010
Moon-Hwan KIM SMBA, KOREA
22
Ⅰ. SME Financing Status
SME Financing PoliciesⅡ.
Direction of SME Financing Support & Development
Ⅲ.
33ⅠⅠ. SME financing . SME financing StatusStatus
Borrowing from banks takes lion's share
1. General Introduction
Share of direct financing like stocks, corporate debentures, etc: 2% in 2009
Bank borrowing
2007 2008 2009
370.0
6.4
422.4
6.7
443.5
9.0
2010.03
446.8
4.7Direct financing
Total 376.4 429.1
452.5 451.5
2006
303.3
4.0
307.3
2009
2008
Bank capital
62.1
71.5
(98.7)
(1.3)
(98.3)
(1.7)
(98.4)
(1.6)
(98.0)
(2.0)
(99.0
(1.0)
Policy capital
30.8
21.8
3.1
3.9
0.3
0.2
0.8
0.1
2.8
1.8
0.1
0.5
Stock Private debt
< SME Financing in Sources >
< Breakdown of External Capital Sources (By
Amount)>
※ Source: Korea federation of small and medium business (Kbiz)
Non-Bank finance
institute
Corporate
debenture
O’seas borrowin
g
44
2. SME Financing by Sector
1) Borrowing From Banks
Outstanding SME loans : 448.2 trillion won, accounting for 46.6%
Since the 1998 foreign exchange crisis, bank lending to SMEs has increased steadily, affected by shrunken lending to big
< Status of Bank Lending to SMEs (unit: trillion won),%>
Total won-currency loans
2007 2008 2009
792.1
428.6
903.8
515.2
942.3
533.9
2010.05
961.3
545.6Corporate loans
SMEs 370.0(46.7)
422.4(46.7)
433.5(46.0) 448.2(46.6)
Household loans 363.5 388.6
408.6 415.7
of aggregate won-currency lending
conglomerates and stiffer regulations for household lending
55
Sailent Points of Bank Lending to SMEs
Blue chip-oriented lending practices continue Lending based on mortgage or certificate of guarantee
⇒ Financing bottlenecks stiffle promising SMEs with weak financing structurebut holding competitive technology and growth potential
as well as micro-enterprises
’08.12 ’09.06 ’09.10 ’09.12 ’10.05
Banks lending Interest rates for SMEs
6.91
6.75
5.43 5.67 5.45 5.24
5.565.895.895.56
Loan based on
certificate of credit
guarantee
23.1
Demand for savings & deposits
6.5
High Lending interest
rate
22.7 5.2 6.6 9.2
Borrowing ceiling
evaluation based on
sales turnover9.5
Difficult to borrow at right time
Stiffer Loan
screening Procedure
s
Credit lending
difficulty
< Bottleneck in Financing via Finance Institutes (%) >
※ Source: Kbiz
Demand for
Excessive real estate mortgage
15.9
66
2) Capital Financing in Direct Finance Market SMEs, due to lower credit rating, face bottlenecks in
access to SMEs’ capital from direct finance market: 1.7 trillion
won,
Angel investment is recovering slightly but remains at
2006 2007 2008 2009 2010.6
7,333
9,9177,247
8,671
4,148
971897
492 346
Venture capital
Angel capital
2006 2007 2008 2009 2010.6
20.72.9 34.2
5.4
29.8
3.1 53.9 1.721.5
5.3
346
direct finance market
accounting for 8% of large conglomerates
stagnation level
77
3) Capital From Policy Financing
Characteristics of SME Financing SMEs-- Backbone of the national economy
SMEs
Large EnterprisesNos of Companies Employees Manufacturing Production Exports
0.1%
99.9% 53.7%
46.3%
67.6%
32.4%88.5%11.5%
Mortgage-based lending practices and private finance institutes’
Role of Policy Finance Support for Biz start-up & areas of market failure
- Compensating for shrunken lending, stemming from business fluctuation
Pioneering in fostering of excellent tech & green facing next-gen. growth industries that are facing bottlenecks in access to finance markets
avoidance of assistance lead to market failure
including global financial crisis
88
3) Capital Financing via Policy Finance
Policy finance : policy capital, credit guarantee, on-lending,
Policy financing scale: significantly expanded during global
Policy capital(loans)
Credit guarantee assistance
2007 2008 2009
2.8
44.7
3.2
50.3
5.9
75.3
2010
3.1
66.1
Aggregate-limit lending
6.4 8.1 10.0 8.5
On-lending - - 0.2 2.1
Policy financing Implementation (trillion won)
aggregate ceiling lending, etc.
2009 economic crisis
99
ⅡⅡ. SME Financing Policies. SME Financing Policies
1. History of Development of SME Policy Financing
1) '60s~'70s Large enterprise and heavy & chemical industry-oriented growth
Established finance and support institutes to
Introduced mandatory minimum
SMEs became targets for policy wise protection
Industrial Bank of Korea ('61), Korea Credit Guarantee Fund (June '76),
* Increased the bank loan ratio of provincial banks for SMEs: ‘06 7.7%
‘72
‘06
‘75
12.9%
56.7% 43.7%Provincial Banks
Commercial Banks
Loan Ratio to SMEs
and export drive policies went into full swing
implement SME policy financing
Small and medium Business Corporation (Dec. '78)
lending ratio system for SMEs (April '65)
30% → 40% ('72)
1010
2) '80 ~ Foreign Exchange Crisis
While experiencing a high growth period, structural imbalance
Compared with the '70s, bank loan ratios for SMEs increased
Centering on provincial banks and special banks, household loans
occurred between heavy & chemical industries and light industries and also between large enterprises and SMEs
Awareness of SME functions and roles changed
Major Policies
Newly established a mandatory provision in the
Increased bank loan ratio for SMEs
Expanded structural improvement funds through
30%→35%
Commercial Banks 40%→55
%Provincial Banks
25%Domestic Branches of Foreign Banks
started to be increased
quantitatively but actual ratios turned out to be similar.
restructuring of SMEs
Constitution regarding protection and cultivation of SMEs
1111
3) After Foreign Exchange Crisis
Breakaway from bank loans rose with large enterprises' efforts to
(Early 2000s) Risk-avoidance tendency prevailed, and household
Banks strengthened loan marketing for households and blue-chip SMEs. Loans to SMEs rose continuously.
(After 2005) With the start of the policy restricting household
strengthen their financial soundness in the wake of bankruptcy risk
loans, SME loan ratio rapidly surged
loan ratio began to outpace corporate loan ratio
(Unit: trillion won)
Banks' SME Loan Ratios
’05 년 ’06 년 ’07 년 ’08 년
422.2371.7
303.3258.0
’09 년
443.5
during the foreign exchange crisis.
1212
SME Financing Support Scheme
2. Key Elements of Current SME Financing Support Systems
Policy Fund
On-lending
Category Micro-businesses
Start-up/Small enterprises
4.5%
Supportive Interest Rates
Bank Fund
-
6 ~ 8%
3.7~5.0%
7.1~7.3%
4.3~8.4%
Medium-sized enterprises
4.1~5.4%
5.5~6.3%
4.9~6.5%
High Risk (Financial Expenditure: High)High Risk (Financial Expenditure: High) SME Financing Support Scheme
SME Financing Support Scheme
Start-up & Promotion Fund (SBC)
Fund of Funds
(1.2 tril. won)
Policy Fund
(3.1 tril. won)
Fund of Funds
(1.2 tril. won)
Credit Guarantee
(67.1 tril. won)
On-lending (KOFC)
Aggregate Credit Ceiling System(BOK)
Interbank Export Loan
(2.1 tril. won)
State-controlled
Banks (178 tril. won)
Private Banks
(257.5 tril. won)
Aggregate Credit Ceiling Loan
(8.5 tril. won)
Mandatory SME Loan Ratio (45~80%)
Investment
Loans
Proxy Loan
Direct Loan
Investment
Guarantees
1313
1) Support for Policy Fund Loans
Business implementation agency: SBC
Content of the business: Supply long-term, low-interest fundsto SMEs avoided by private banks due to weak credit
and collateral despite having technological and business viability
Revamped corporate evaluation to focus on technological and businessviability, including future marketability and growth potential,
rather than on financial status, while strengthening complementary functions regarding market-failure areas
Supply long-term (3~8 years) funds at low interest rate compared with
* Policy fund interest for 2nd quarter of '10: 4.03~4.40%
Areas of support: Initial period of start-up, long-term facility investment,.
banking institutions
micro-businesses, etc
1414
‘06
43.8%(1.0 tril. won)
46.4%(2.2 tril. won)
‘09
Direct Loan
‘06
56.2%(1.3 tril. won) 53.6%
(2.6 tril. won))
‘09
Proxy Loan
Support methods by lending type Direct Loan: SBC processes all the procedures, receipt of
applications for
Proxy Loan: SBC implements primary loan examination and banks carry
fund - loan examinations - post management.
out final loan examination - loan - post management functions.
Support Results by Lending Type
Operation scale (100 million won)
Support Budget
Outstanding Lending
2007 2008 2009
31,315
126,558
31,530
129,326
58,555
161,316
2010
31,355
164,946 (as of end June)
1515
Appraisal of operating performance
Support the fund in the long-term with low interest rates for the areas,
Supply funding to SMEs rapidly and minimize damage when shocks
including start-up enterprises and facility investment, where private banking institutions find it difficult to carry out their roles, and contribute to SMEs' stable capital management and reduction of financing expenses
occur due to non-economic factors, such as natural disasters and sharp international raw material price hikes,
Jobs creation : 39,300 persons ('09 results) → 44,500 persons (plan for '10) - Average employment growth per enterprise: 3.21 persons ('09 results)
- Job creation effect per 100 million won: 0.77 persons ('09 results)
→ 3.64 persons (plan for '10)
→ 0.88 person (‘10 target)
1616
2) Credit Guarantee Support
Business implementation agency: Korea Credit Guarantee Fund
Content of the business: Support credit guarantees for SMEs that areexperiencing difficulties in obtaining loans from private
banks due to a lack of collaterals
Operate the system with differentiation of target enterprises for
Non-technology-oriented SMEs
Intensive
Support
`KODIT KOTEC KFRCGF
Technology-oriented SMEs
Region-friendly micro businesses
- Start-up firms- Export firms- Green growth firms
- Venture firms- INNO-BIZ firms- Green growth firms
- Small firms- Self-managed micro firms- Unregistered micro
(KODIT), Korea Technology Finance Corporation (KOTEC), Korea Federation of Regional Credit Guarantee Funds (KFRCGF)
intensive support after specialization of business areas by guarantee agency
businesses
1717
Guarantee Support Scale (trillion won)
Basic Structure of Guarantee Support
KOTEC
KFRCGF
2007 2008 2009
11.2
4.6
12.6
6.0
17.1
11.2
2010.6
17.5
12.6
Guarantee-applying enterprise
Guaranteeing Agencies
④ Provide
loans
② C
olle
ct d
ata,
cond
uct cr
edit
inqu
iry,
exa
min
e
guar
ante
e① A
pply
for
cons
ultin
g on
guar
ante
e
③ Issue guarantee certificate Banking
Institutions, etc.
2006
11.2
4.0
Total 44.4 49.0 67.6 71.143.7
KODIT 28.5 30.4 39.2 41.028.5
1818
Appraisal of credit guarantee operating performance
Strengthen the public benefits of financing functionsby supporting technological and business viability-oriented innovative enterprises having future growth potential despite their more or less weak collateral and low credit ratings.
Government
Strengthen financial health and support SMEs smoonthly inaccordance with a downward adjustment of the risk weight (10%→0%) in Basel II.
Banks
Enhance accessibility to bank financing and obtain smooth supplyof business funds in a timely manner by compensating
for weak collateral and credit rating areas through guarantees
SMEs
SMEs were able to overcome the recent economic crisis at an early date with expanded policy financing through guarantees, etc.
Credit guarantee facilitates loans to SMEs to reduce SME market failures and contributes to the development of the national economy.
1919
3) On-lending Support
Overview of on-lending
On-lending operating
Korea Policy Banking Corporation (KPBC) suggests guidelines regardingtarget SMEs for support and supplies on-lending funds to
financing companies.
Financing companies examine applicant SMEs and decide whether to
KPBC supports reinforcement of credit and liquidation to ease the riskburden of financing companies.
No. of Cases
Support Status
(100 mil. won)
2009 2010
263
2,305
-
21,000
provide loans or not and the loan interest rates
status
2020
4) Central Bank's Systematic Support
BOK increased its aggregate credit ceilings significantly to overcome
Based on the results of loans handled by banking institutions, the
4-1) Aggregate Credit Ceiling System
Bank of Korea (BOK) supports funds to 17 banks after determining aggregate credit ceilings.
’94.3 ’97.2 ’98.3 ’01.1 ’01.10 ’02.10 ’07.1 ’07.7 ’08.11 ’09.3 ’10.7
Trends of Aggregate Credit Ceilings (trillion won)
8.8
3.65.6 9.6
11.69.6
8.06.5
9.010.0 8.5
BOK establishes aggregate credit ceilings by quarter and allocates funds tobanking institutions according to the results of their lending
to SMEs.
the economic crisis (6.5 → 10.0 trillion won)
2121
Effects
Loan interest rates lower than market interest rates have beenapplied to achieve policy goals, including expansion of
SME lending and balanced regional development.
Accelerate banking institutions' selective financial support for SMEs Actively handle loan products relevant to aggregate credit ceilings Reduce SMEs' expenses for supply of funds with application of
Limitation
’94.3 ’01.9 ’04.11 ’06.6 ’07.7 ’08.8 ’08.12 ’09.2
5.0
2.52.0
2.53.0 3.5
1.751.25
preferential interest rates
Effectiveness of interest benefit is less in low-interest eras like the present.
2222
Medium-term loan ratio of domestic banks ('09): 67.6%
Encourages banks to support more than a specific ratio of the
4-2) Mandatory Minimum SME Loan Ratio System
increased amount of loans from the won-currency finance fund to SMEs (May '65 ~ BOK)
Commercial Banks: Over 45%, Provincial Banks: Over 60%, Domestic
Those banks that do not observe these ratios will receive disadvantages
* Cut the equivalent to 50% of the amount, which was not achieved, from aggregate credit ceilings.
Branches of Foreign Banks: Over 35%
from BOK at the time of allocating aggregate credit ceilings
2323
5) Other Support
This a system in which SMEs insure sales bonds acquired from
5-1) Support for Insurance on SME Sales Bonds
purchasing enterprises and receive insurance fund at the time of purchasing companies' default obligations.
’08 년 ’09 년
3.9
5.3
Results of Sales Bond Insurance
’10 년 (6 월말 )
5.4(±5%)
Government
Credit Guarantee Fund (Insurer)
Purchasing
Enterprise
Insurance
Contractor
(seller of goods)
Enforcement
of
Subrogation
Right
Implementation or Default of Obligation
Paym
ent of
Insu
ranc
e
Mon
ey
Insu
ranc
e
Subs
crip
tion
Business Supervision (SMBA)((SME) Equity Investment
Supply of Goods or Service (occurrence of sales bonds)
2424
99.3% of issuing enterprises' credit ratings: Lower than BB
Support about 2.75 trillion won in funds for 1,053 SMEs that far
5-2) Support for Issuance of SME Corporate Bonds
difficulties in issuing non-guaranteed corporate bonds in the financial market with their own credit ('00~'09: 21 times).
'09 Results: Supported 152 billion won to 64 SMEs (purchased
* Results of ABS (Asset Backed Securities) Issuance by Year (100 million won): 720 ('00)
< Credit Rating Distribution of Enterprises That Issued Corporate Bonds and ABS > (Unit:
%)
subordinated bonds: 40 billion won)
→ 4,172 ('05) → 1,564 ('08)
(speculative rating)
Enterprises That Issued Corporate Bonds
Enterprises That Issued ABS
A Rating or higher BBB BB B
2525ⅢⅢ. . Direction of SME Financing Support & Direction of SME Financing Support & DevelopmentDevelopment
In connection with expanded policy financing, maintain optimum level of liquidity supply designed to support growth and
Provide proper finance support system, helping micro-enterprises
Strengthen technological viability-oriented appraisal system, providingfinancing access to those enterprises that possess
excellent tech &
Smoothe SMEs' capital raising in direct finance market, and
development of future growth-promising enterprises;
stand on their foot.
business success potential but lacks finance and collateral capacity;
2626
Thank you