Commercial Banks' Secondary Loan Support and Other COVID-19 Aid Demand Dispersal? On-site Reactions "Not Sure" (Comprehensive)

One Week Since Implementation of 1.5% Annual Interest Subsidy Loans at Commercial and Industrial Banks
Continued Concentration on KODIT-Guaranteed Loans...Staff Shortages and Processing of Previously Submitted Documents Remain Burdensome

Amid the deepening struggles of small business owners due to the impact of COVID-19, merchants are waiting for customers on the kitchen street in Hwanghak-dong, Seoul, on the 30th of last month. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kim Hyo-jin] It has been revealed that small business owners, who were the first to be hit hard by the novel coronavirus infection (COVID-19), are still facing difficulties in obtaining loans. This is interpreted as being due to the continued concentration of loans guaranteed by regional credit guarantee foundations (Jishinbo) and the failure of ultra-low interest rate secondary guarantee loans from banks to effectively disperse demand.

According to the government and financial authorities as of the 7th, loans executed through COVID-19 special guarantees by 16 Jishinbo nationwide have been tallied at 1.83 trillion won. Jishinbo still handles more than 80% of new funding support for small business owners related to COVID-19.

According to explanations from the Korea Credit Guarantee Foundation and some Jishinbo, since mid-last month, applications for COVID-19 related guaranteed loans amounting to 600 billion to 700 billion won per day have been flooding in.

It takes about three weeks, or as fast as two weeks, to execute a loan. Although this is a significant reduction compared to early to mid-last month when waiting times were up to about two months, in some regions it is still reported that one must wait more than a month.

A Jishinbo official said, "There is a view that the daily application volume may have peaked," adding, "Even so, it is unlikely that applications will suddenly and rapidly decrease, so this trend is expected to continue for the time being."

The problem lies in the backlog of applications that have not yet moved on to the full 'reception and processing' procedures. A Korea Credit Guarantee Foundation official explained, "Once the data entry is completed and the application moves to the review process, the guarantee certificate can be issued within a week, but the time taken to reach this stage is quite long."

Since the COVID-19 outbreak, the Korea Credit Guarantee Foundation has hired 179 short-term personnel with relevant experience and distributed them across Jishinbo nationwide, while Jishinbo themselves have hired 1,007 short-term personnel. Banks nationwide have also dispatched 227 support staff to assist.

Due to the structure of Jishinbo’s computer system, it is not easy for these personnel to be deeply involved in the core review process of issuing guarantee certificates. Although banks handle a significant portion of non-review tasks such as application and reception on consignment, there are limitations.

As part of the ultra-low interest financial support package for small business owners, the secondary guarantee loans with an annual interest rate of 1.5% handled by commercial banks since the 1st have yet to show an effect in dispersing demand. The secondary guarantee loans executed by the five major commercial banks?Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup?from the 1st to the 7th amounted to only about 200 billion won.

There is a large disparity, with some banks executing nearly 100 billion won in loans while others only about 10 billion won. This is analyzed to be due to banks applying their own credit ratings, resulting in many cases where applicants who meet the loan eligibility (grades 1 to 3) according to credit rating agencies were rejected.

To resolve this issue, financial authorities have allowed those with a NICE credit rating of grades 1 to 3 to receive secondary guarantee loans starting from the previous day. At IBK Industrial Bank, ultra-low interest loans are available for grades 1 to 6, but 57,000 applications were received from the 1st to the 6th, raising concerns about delays in loan execution due to overload.

A financial sector official said, "From the perspective of efficiency and speed in COVID-19 related support, commercial banks need to share the burden more actively," adding, "Although authorities have issued guidelines on credit rating application, blind spots may arise, so monitoring will be necessary going forward."

According to the Financial Services Commission, from February 7, when the government first announced financial support measures for small business owners related to COVID-19, until the 6th of this month, a total of 319,000 cases and 28.3 trillion won in funding support have been provided over two months.

This includes 13.7 trillion won in new loans and guarantee support, 13.5 trillion won in maturity extensions for existing loans and guarantees, and 1.1 trillion won in other interest payment deferrals. Policy financial institutions handled 13.2 trillion won, while private financial companies such as banks handled 15.1 trillion won.

This content was produced with the assistance of AI translation services.