We're going bankrupt right now. You didn't know until the IMF crisis broke out,

We're going bankrupt right now. You didn't know until the IMF crisis broke out, did you?

#1. Mr. A, who runs a manufacturer in Ganghwa-gun, Incheon, will apply for a fund dedicated to structural improvement operated by the Small and Medium Venture Business Corporation (hereinafter referred to as Heavy Vacuum). Sales have more than halved since the COVID-19 outbreak, and loan interest rates have soared nearly two to three times, making it difficult for the company to operate.

"If the economy worsens, companies' credit ratings cannot improve, but banks set interest rates and loans based on sales performance," A said. "Even if we lose money, if we increase sales, the amount of loans will increase, which will give us some breathing room, but in the end, the company's financial situation will get worse." A knocks on the door of the heavy vacuum with a desperate mind to prevent the closure of the business, but he is still wondering if this is the right choice.

#2. B, who had been running a construction parts manufacturer for more than 20 years in Gimpo, Gyeonggi Province, recently sold the factory and turned it into a one-person company. The company once grew to over 1 billion won in annual sales, but its annual sales barely exceeded 100 million won last year as deliveries to major suppliers declined due to COVID-19.

B said, "It's sad that I don't have to give my employees a 'New Year' bonus' for the first time since I set up a company," adding, "I'm worried about whether I can endure like this and make a comeback again."

As the economic recession that has continued since COVID-19 has intensified in recent years, the "new sound" of small and medium-sized enterprises in the Seoul metropolitan area is deepening. In particular, it is pointed out that the government's countermeasures are urgent as the number of bankrupt companies that surged last year is expected to continue this year.


Corporate Bankruptcy Report Last Year, Largest in Last Decade... 66.6% of Companies in the Seoul metropolitan area

According to the monthly statistics of the Supreme Court on the 11th, 1,103 corporations in the Seoul metropolitan area filed for bankruptcy last year (678 in Seoul Rehabilitation Court, 42 in Uijeongbu District Court, 63 in Incheon District Court, and 320 in Suwon District Court), accounting for 66.6 percent of 1,657 cases reported nationwide. Two-thirds of the companies closed across the country were in the Seoul metropolitan area, and three companies in the Seoul metropolitan area visited the court to file for bankruptcy a day.

This is the highest number in the last decade when the Supreme Court released statistics on corporate bankruptcy reporting. Previously, the highest number of corporate bankruptcy reports was 2020, when the spread of COVID-19 peaked, with 1,069 cases nationwide and 719 cases in the metropolitan area, far exceeding last year.

This phenomenon is attributed to the prolonged economic downturn caused by rising raw material prices and labor costs, as well as the high-interest rate shock from the United States. Above all, it is presumed that the companies that took out loans during the time of COVID-19 were unable to withstand long-term recession and high interest rates.

Bank interest rates have risen 7 times in 2 years... The delinquency rate of commercial banks' 企 loans also surged

Earlier, the Bank of Korea raised its benchmark interest rate from 0.50% in August 2021 10 times until January last year, raising it sharply to 3.50%. In two years, the amount of interest that companies have to pay has increased by seven times. Since then, interest rates have continued to freeze, but they are still high for small and medium-sized companies to handle. Companies whose profits have declined as the economy rarely recovered are having difficulty repaying principal and interest.

As of the end of the third quarter of last year, the average delinquency rate of loans to the five major commercial banks in Korea (KB Kookmin, Hana, Shinhan, Woori, and NH Nonghyup) was 0.39%, about 0.11% points higher than the average household loan (0.28%).

When looking at the delinquency rate of SME loans by each bank, Nonghyup Bank was the highest at 0.51%. It is the first time that Nonghyup Bank's delinquency rate for SME loans has exceeded 0.5% since the first quarter of 2020, when COVID-19 spread. Hana Bank followed at 0.4%, Woori Bank at 0.38% and Shinhan Bank at 0.34%. All are the highest numbers since 2021.

Desperate but high threshold for loans and government support

This atmosphere is also felt within the small and medium-sized businesses. "We did tax affairs for more than 100 companies until last year, but it has decreased to about 80 companies this year," said an official at a tax office in Gyeonggi Province. "As large and medium-sized companies reduced their orders due to the long-term recession, small and medium-sized companies that lacked capital could no longer hold out and closed their doors first."

The high-interest rate problem is also squeezing small and medium-sized enterprises, the official said. "For example, a company in Gyeonggi-do Province tried to sell real estate because it could not pay back interest on the bank, but it is often seen recently that overdue interest accumulates without income because it could not sell due to high interest rates and recession."

In order for SMEs to breathe, they need active support from banks, but the opposite was true. According to the data released by the Bank of Korea's recent "Financial Institutions Loan Behavior Survey," domestic banks' loan behavior index for small and medium-sized companies in the fourth quarter of last year was -6, which was significantly lower than that of large companies (3). If the index is negative, it means that it makes it more difficult to examine, pay, and manage loans.

Small and medium-sized companies that fail to cross the threshold of banks also knock on support agencies such as the Korea Federation of Small and Medium Businesses and the Korea Small and Medium Venture Business Promotion Corporation, but this also does not seem to be easy to get help. "There are many criticisms that the government or the National Assembly should raise the criteria for screening support for small and medium-sized enterprises," said an official at the Korea Heavy Vacuum Corporation. "We operate many support programs to help small and medium-sized enterprises get out of insolvency quickly, such as funds dedicated to structural improvement or preemptive autonomous structure improvement programs, but there are limitations on the targets and scope of support."