Structural Changes in
Trade Credit Markets in Korea
2003. 11. 10
Joon-Kyung Kim, KDI
Declining trend of total commercial bills issued
following the crisis
<Bills Receivable and Discounted>
(unit: billion won, %)
.
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Bills
Receivables
(A)
Bills
Dis counted
(B)
5,409.5
5,807.8
7,150.6
7,869.1
10,538.1
15,852.2
19,438.2
20,806.4
23,600.3
29,364.9
32,212.4
31,914.4
49,785.0
43,655.7
42,794.1
41,397.6
39,480.0
44,938.2
4,192.0
4,335.0
5,893.0
7,551.0
9,234.0
11,859.0
16,257.0
19,859.0
24,699.0
34,290.0
38,826.0
52,746.0
46,835.6
26,876.6
35,811.3
35,643.5
24,299.1
21,589.3
Total
Bills Is s ued
(A+B)
9,601.5
10,142.8
13,043.6
15,420.1
19,772.1
27,711.2
35,695.2
40,665.4
48,299.3
63,654.9
71,038.4
84,660.4
96,620.6
70,532.3
78,605.4
77,041.1
63,779.1
66,527.5
Proportion of
Bills Dis counted
B/(A+B)
43.7
42.7
45.2
49.0
46.7
42.8
45.5
48.8
51.1
53.9
54.7
62.3
48.5
38.1
45.6
46.3
38.1
32.5
Following the crisis, small and medium-sized
companies have received more cash for goods sold
< Payment for SMC’s Goods Sold by Method >
1988
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
cash
43.6
34.0
29.4
28.2
30.3
29.4
28.2
32.0
34.4
38.9
58.0
60.1
bills receivable
45.6
59.2
56.2
56.6
57.5
55.7
59.5
53.6
49.8
43.1
42.0
39.9
(unit: %)
other receivable
total
10.8
100
6.8
100
14.4
100
15.2
100
12.2
100
14.9
100
12.3
100
14.4
100
15.8
100
18.0
100
100
100
The sharp decrease in fixed investment after
the crisis led to the decrease in bills issued
< The Relationship between Trade Credit and Fixed Investment >
40%
24%
38%
22%
FIXED INVESTMENT
/GDP(LEFT)
36%
20%
34%
18%
32%
16%
TRADE CREDIT
/GDP(RIGHT)
30%
14%
28%
12%
26%
10%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Mitigation of shortage of funds in corporate sector
following the crisis led to the decrease in bills issued
< The Relationship between Trade Credit and
the Extent of Shortage of Funds in Corporate Sector >
20%
24%
(FUND RAISING-FUND UTILIZATION)
/GDP(LIFT)
18%
22%
16%
20%
14%
18%
12%
16%
10%
14%
TRADE CREDIT
/GDP(RIGHT)
8%
12%
6%
10%
4%
8%
2%
6%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Advantages of suppliers over financial institutions
1. Advantage in information acquisition
- Through the normal course of business, suppliers can get
the buyer’s information at lower cost
2. Advantage in salvaging value from existing assets
- If the buyer defaults, both the banks and the supplier can seize
the goods supplied.
- If the supplier already has a network for selling its goods, its
costs of resale will be lower than that of banks.
Different treatment of suppliers between formal
insolvency procedure and informal workout
- Supplier is usually just one of non-secured creditor, so he/she
would be better off if the ailing buyer enters into the workout
program compared with the in-court Corporate Reorganization
procedure.
* Under the Corporate Reorganization procedure, all the buyer’s
debts, including bills payable, are frozen.
* There does not exist a clear rule in treatment of suppler and
non-secured creditor institutions.