Usually corporate turnaround program draws a serious attention when it is caused by large companies, also known as Conglomerates, when the company itself or whole group falls in financial trouble. According to the corporate turnaround handbook, the program shall be initiated and managed by each creditors or creditors’ banks who made a significant loan. Since saving this troubled big companies are considered as so call ‘too big to fail’, the turnaround program for SMEs tend to be overshadowed until now. In order to facilitate or speed up SME’s turnaround, national financial watchdog, Financial Supervisory Service (FSS) and the Small Medium Business Association (SMBA) teamed up together to support their turnaround in terms of preemptive measure.
According to the recent study of the Bank of Korea (BOK), corporates who are unable to cover their interest payment under their operating income had significantly increased YoY. One of major indicator for financial stability, interest coverage ratio represents that the number of corporates who running less than 100%, interest payment exceeded the operating income, had soared by 6.3% in 2011. Also more troubled SMEs expect to put themselves into turnaround program under the supervision of major creditors’ banks this year by 9.5%.
Clearly current situation of ailing corporates including SMEs comes from ongoing global economic recession as well as domestic stagnation. In order to prevent SMEs from severe turmoil and financial trouble, FSS teamed up with SMBA, consider the implementing SME turnaround support program soon. Starting from early March, the team of government expects to conduct the process as follows leveraging the current SME monitoring system by SMBA as well as creditors.
Based on classification by financial status, troubled SMEs shall be reported to financial support institutions for SMEs, such as SMBA, SB, KTFC, KCGF. Through their own financial health monitoring system, the SME shall be examined and be treated under the prescription. As for SMEs having possibilities to recover, financial support will be provided under the restructuring plan. As for no survivors, liquidation process shall be strongly recommended because no more financial support is necessary. As the current monitoring systems managed by banks have a propensity to focus on short-term loan program for troubled SMEs, which do not effectively contribute to early turnaround, the proposed combined program above expect to enhance the possibility of quick turnaround / recovery of SMEs under the government loan program in terms of mid and long-term perspective.
It is undoubtedly true that SMEs are considered as a crucial element for the entire economy. The soundness of SMEs brings about more solid and stable economic growth and prosperity. So there is a clear reason that more effective support and measure for SMEs are absolutely necessary for now.
By Jin Mok Kim