Banking Sector's 'Ultra-Low Interest Rate Secondary Loan Support' Execution Varies

[Asia Economy Reporter Kim Hyo-jin] It has been revealed that the execution of ultra-low interest rate secondary loan support programs by commercial banks, aimed at supporting small business owners affected by the novel coronavirus infection (COVID-19), is inconsistent. Except for a few banks, many are slower than expected, leading to criticism that the purpose of timely support is being undermined.

According to financial authorities and the banking sector on the 15th, Woori Bank plans to close applications for the secondary loan support program early next week, making it the first among commercial banks to do so. Woori Bank decided to handle 430 billion KRW in secondary loan support. As of the 8th, it had executed 377.7 billion KRW, achieving an execution rate of 87.8% compared to its planned amount.

The secondary loan support program is one of the government's first emergency loan programs to provide financial support to small business owners affected by COVID-19. It offers loans of up to 30 million KRW with a one-year maturity and an interest rate of 1.5% to small business owners with credit ratings from 1 to 3. The key feature is that the government covers 80% of the difference between the market interest rate and the loan rate.

Woori Bank is known to have actively encouraged execution by reflecting the secondary loan support performance in its Key Performance Indicators (KPI). Additionally, about 50 staff members from the head office were dispatched to branches to assist with loan processing.

NH Nonghyup Bank executed 294.1 billion KRW (72.9%) during the same period. NH Nonghyup Bank offers the secondary loan support at one of the lowest interest rates among major commercial banks. According to NH Nonghyup Bank, it is broadly extending loans up to credit rating 5 in line with the program’s goal of urgent support for financially vulnerable groups. NH Nonghyup Bank is expected to exhaust its initially planned 402.9 billion KRW within this month.

The execution rates of other major commercial banks remain between 30% and 50%, making it difficult to estimate when the loans will be fully disbursed. Financial authorities have been continuously urging banks to execute loans more actively. They have stated that unless there are significant private conflicts of interest or procedural defects, banks will not be held responsible for credit soundness management regarding COVID-19 related financial support, requesting faster loan execution.

Banks maintain that this is unavoidable from a risk management perspective. A senior official from a commercial bank said, "Relying solely on the authorities’ exemption policy makes it difficult to manage internal credit policies," adding, "It is not appropriate to judge proactiveness simply by numbers such as execution rates or amounts, as banks approach this from their own circumstances and various indicator management perspectives."

It is also analyzed that the rapidly worsening business environment, such as the banking sector’s net interest margin (NIM) hitting a record low of 1.46% in the first quarter and net profit decreasing by 18% year-on-year, is making banks cautious.

There is also criticism that the program’s design, which targets only those with credit ratings from 1 to 3, was problematic from the start.

A representative from another commercial bank said, "Most small business owners who really need urgent funds have medium to low credit ratings," adding, "We understand that many relatively financially stable small business owners take the secondary loan support simply because it offers ultra-low interest rates and keep it as emergency funds."

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