IBK Head Office building. (Photo: IBK)
The Industrial Bank of Korea is out to support its SME clients go through restructuring with diverse financial means. Its slogan, “Finance right and we can succeed together,” was set up following its Companion Finance declaration at a recent ceremony.
At the moment, support for SMEs has not been strong enough to keep them amid defaults of large business firms, especially since the suspension of the Gaeseong Industrial Complex in North Korea, coupled with the China’s retaliatory measures against the deployment of U.S. anti-missile system in Korea.
Most attention has been paid on big firms and not enough focus has been on SMEs.
That has been changing recently, as IBK has been focusing its support on five major industries including shipbuilding, shipping, construction, steel and petrochemicals, especially on SMEs in those industries.
The bank last year plowed its support into 317 vendors for big firms in those industries to help them tide over their liquidity problems, while firms with plants in the Gaeseong industrial Complex in North Korea got emergency loans and loan extensions from IBK after the industrial complex suspended its operations. Most recently, IBK has also been providing financial support to SMEs hurt by the China’s moves against a U.S. anti-missile self-defense system in South Korea.
The bank helped around 300 firms to go through restructuring, and 300 to 400 firms normalize their operations. That’s equivalent to about one company per day it helped recover its normal operation. IBK’s three major support programs for SMEs are: The Change-up Program; the M&A Support Program; and the SMEs Exclusive Restructuring Program.
IBK has been using the SME support programs instead to help prevent those companies from going out of business.
The Change-up Program is a representative restructuring program for IBK. The bank conducts a very thorough analysis of companies before restructuring is implemented, including a review of sales, business operations, programs to save itself, and its ability and wherewithal to survive on its own.
Last year alone, the bank provided 46.8 billion won in new loans to companies going through restructuring, lowering interest rates on 19.1 billion won in loans, extending the maturity of loans totaling 1.396 trillion won and turning around 6.9 billion won in loans to investments.
IBK reviewed the operations of SMEs and their “self-help programs” to see if they were ready for normalization. Companies included listed firms and those with good technology potential. IBK tried to save some of them through its M&A Support Team, which was set up in 2013.
Moody's believes that there is a very high likelihood that IBK Securities will receive affiliate support from its parent, IBK, because IBK Securities is 84 percent owned by IBK and forms a core part of IBK's overall strategy of providing both bank financing and capital markets access to SMEs, based on the SMEs' stage of development.
As a core subsidiary of a policy bank, IBK Securities is subject to an additional layer of risk management, such as an annual audit by the Board of Audit and Inspection of Korea. Furthermore, IBK Securities is allocated annual limit on capital usage from IBK, due to the fact that IBK's BIS capitalization is calculated on a consolidated basis, including financials from IBK Securities. The subsidiary also signs memorandums of understanding with IBK every year to successfully execute the banking group's strategies.