These days small- and medium-sized businesses (SMEs) are undergoing a financial crisis worse than that of 1997. While large companies have profited from recent export increases, the nation's SMEs are struggling with debt. Toward the end of last year a prolonged stagnation in domestic demand reduced sales.
The Bank of Korea says that loans to SMEs amounted to less than 15 trillion won a year until 2001, but then shot up to 37.1 trillion won in 2002 and 35 trillion won in 2003. Many loans come due this year. Loans to conglomerates, however, amounted to only 1.1 trillion won in 2002. In 2003, the big groups paid back 3 trillion won in net terms.
SMEs placed too much confidence in the recovery of the domestic economy and took out large loans to invest in equipment, said an analyst of the Industrial Bank of Korea. At the time, banks were flush with cash, so they were happy to hand out loans.
