Financial preservation has recently been a controversial topic on news and articles. Then, what does it mean? After Korea suffered financial crisis in 1988 and household credit crisis in 2003, banks had to go through long-term economical depression. This made them set sensitive loan standard to medium-enterprises, sole proprietors and households, tending to withdraw loans if those debtors seem to have passive sales indicators. It is the governmental economic policy that made financial preservation begun to surface, which considered it as typical barriers that hinder domestic market activation. Followed by the policy made from economic team of the deputy prime minister, president Park also denounced financial world in economic ministerial meeting on July 24th, saying “For what reason does finance exist if it is not functioning properly? Because of the facile awareness that bank employees have, it tends to evade larger loans or riskful investments.” Professionals insist finance doesn't support object economy exactly as well.

Riddled with financial preservation derived from the fear of management aggravation, banks reject giving loans to SMEs (Small and Medium-sized Enterprises) due to the temporary sales slump, disregarding the prior growth rates or unavoidable situations such as economic recession. Some banks only provide short-term loans of one year or less to recover bank loans easily, or even threatens the company with loan retrieving demands. According to the Bank of Korea, secured·guaranteed loans and credit accounted 50% respectively in small business loans in 2008. However, the credit loan proportion declined sharply by 42% at the end of last year. To their balance quantity, secured·guaranteed lending increased 74.4 trillion won while credit loans decreased 1.4 trillion won. This shows that their policies to support technology-based SMEs are just mere words.

The very reason that many SMEs go into bankruptcy lies in these lending practices. SMEs without security have been unable to get a loan even if they had certificated technologies. This lead to financial difficulty which make it impossible for these companies to invest or meet the supply standards and deadlines required by the buyer (especially large corporations). At last, they lose their qualification of supplier and meet with destruction. This abnormal circulation hinders the trial to break down dominant structure by the large companies and grow as a hub of “Hidden Champion" (MEDs; enterprise of middle standing), such as Germany.

Economists point out backward systems prevailing in banks, such as personnel disadvantages and restrictions inflicted to the loan manager when non-performing SME loans have occurred or practice that assess the credit only by financial indicators such as sales and profits, are the fundamental reasons of this negative situation. In addition, banks often order branch manager and his clerks to compensate for the loss caused by the bad debts. This made tellers eventually follow the same bad customs that obsess to secured·guaranteed loans because they don’t want to lose favor with their boss.

Ultimately, economists suggest three ways to ban financial preservation: adopt the credit assessment system that reflects the non-financial factors such as technology and growth, minimize the restrictions of the manager whom caused the non-performing SME loans, and develop a professional staff who can assess the potential corporate insolvency.

-Words

Financial preservation: 금융 보신주의
household credit crisis: 가계신용위기
sole proprietor: 자영업자
sales indicators: 재무지표
deputy prime minister: 부총리
financial world: 금융권
Riddled with: ~으로 점철된
management aggravation: 경영 악화
SME: 중소기업
balance: 잔액
secured·guaranteed loans: 담보ㆍ보증대출
credit loan: 신용대출
supplier: 납품업체
MED: 중견기업
bad debt: 악성 채무
corporate insolvency: 기업 부실