Commercial Banks Provide Emergency Funds to Small Businesses with Ultra-Low Interest Loans at 1.5%

Financial Authorities-Banking Sector COVID-19 Response Meeting

Eun Sung-soo, Chairman of the Financial Services Commission, along with heads of major commercial banks, are attending a meeting between the Financial Services Commission Chairman and bank presidents held on the 20th at the Bankers' Hall in Jung-gu, Seoul, exchanging opinions. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Oh Hyung-gil] The government and commercial banks have decided to provide funds at an ultra-low interest rate of 1.5% to small business owners in urgent need of funds.

On the 20th, the Financial Services Commission held a meeting with the chairman of the Korea Federation of Banks and the heads of eight commercial banks to respond to the novel coronavirus infection (COVID-19). At this meeting, the financial authorities explained the livelihood and financial stability package program worth more than 50 trillion won announced the previous day and requested cooperation from the banking sector to ensure its smooth implementation.

First, the Management Stabilization Fund of the Small Enterprise and Market Service will focus on supporting small business owners with weak credit, and the ultra-low interest loans from Industrial Bank of Korea will supply funds mainly to medium-credit small business owners.

Small business owners with good credit ratings will receive necessary funds more quickly from commercial banks, and the government will provide secondary interest subsidies. They will also actively cooperate with the outsourcing of tasks to regional foundations, where work is delayed due to the recent surge in loan demand.

The financial authorities stated, "We agreed that it is important to guide small business owners to suitable financial products at bank consultation counters," and added, "We will actively strive to ensure that the extension of loan maturities and interest payment deferrals across all financial sectors can be implemented from April 1 without confusion or delay."

The financial authorities also urged active participation in the establishment of the Bond Market Stabilization Fund and the Securities Market Stabilization Fund. The bank heads attending the meeting agreed to actively participate in the creation of a 10 trillion won bond market stabilization fund.

The Bond Market Stabilization Fund is established to support corporate liquidity and to resolve excessive spread differences between government bonds and corporate bonds. It is a fund jointly invested by the financial sector, centered on banks, which invests in high-quality financial bonds and corporate bonds to provide liquidity. A total of 10 trillion won was raised during the last financial crisis.

Depending on the depletion of funds in the Bond Market Stabilization Fund, they agreed to actively cooperate in increasing the fund size if necessary.

The financial authorities also requested that commercial banks and other financial institutions refrain from recalling loans when policy financial institutions such as the Korea Development Bank provide liquidity support to companies experiencing temporary cash flow difficulties, to maintain the effectiveness of such support.

A financial authority official said, "We will actively support efforts to improve banks' capital soundness by implementing active exemption measures in parallel so that such support does not adversely affect banks' capital soundness, management evaluations, or internal performance evaluations of responsible employees."

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