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Gov't under fire for lax screening of ailing companies receiving support

Financial Services Commission Chairman Eun Sung-soo attends an emergency economic meeting at the Government Complex in Seoul, Feb. 24. Yonhap
Financial Services Commission Chairman Eun Sung-soo attends an emergency economic meeting at the Government Complex in Seoul, Feb. 24. Yonhap

By Lee Min-hyung

Korean banks are criticizing the government's allegedly lax screening of ailing companies that are selected to be recipients of state support.

They are urging financial authorities to adopt stricter screening procedures when deciding whether to extend financial benefits to small- and medium-sized enterprises (SME) hit hard by the COVID-19 pandemic.

The complaints follow Financial Services Commission (FSC) Chairman Eun Sung-soo's recent remarks focusing on support for financially troubled companies in the aftermath of the pandemic.

"We cannot come to the conclusion that companies suffering from temporary financial shortages due to the COVID-19 pandemic are zombie companies," Eun said in a recent statement.

A zombie company is a company that needs bailouts in order to operate, or an indebted company that is able to pay off the interest on its debts but not the principal.

He stressed that pandemic-hit companies could pay back the principal and interest after the economy returns to normal following the end of the pandemic.

The conflict between regulators and banks revolves around authorities' repeated calls for banks to extend loan-related benefits to virus-hit companies. The FSC decided Tuesday to allow SMEs and the self-employed to postpone their loan interest and principal payments for another six months until the end of September.

But commercial banks criticize the decision as unilateral, saying it will pose a burden on banks' earnings at a time when toughened government regulations have already impacted business.

"It is true that some companies may be able to bounce back from the shock after the pandemic comes to an end, but most of them will not be able to do that," an official from one major bank here said.

"We are skeptical that companies which fail to pay back interest for more than a year can survive even after the pandemic shock."

Lenders have no choice but to abide by what appears to be the "well-intended" decision by the FSC, but the watchdog needs to be more careful when selecting companies that can receive the financial benefits, according to the bank official.

Another official from the financial industry also voiced widespread views saying that authorities need to come up with measures to satisfy both banks and financially weak companies.

"The middle ground will be to pick and choose companies that have the potential of rebounding after authorities conduct careful reviews of their financial statuses," the official said.

Banks also have internal systems to identify such companies, but authorities keep urging lenders to make sacrifices even for businesses with little potential for revival, according to the official.

Lee Min-hyung mhlee@koreatimes.co.kr


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