Foreign Bank Secondary Guarantee Loan Limit Reduced...Criticism Over Passive COVID-19 Response

[Asia Economy Reporter Kangwook Cho] The support amount for ultra-low interest rate secondary compensation loans for small business owners, which had been allocated to foreign banks, has been reduced, and the decreased amount has been redistributed to the five major domestic banks. This is interpreted as due to the performance of ultra-low interest rate loans for small business owners, promoted as a government policy, falling far short of expectations at foreign banks.

According to the financial sector on the 17th, the financial authorities recently cut the secondary compensation support amount allocated to SC First Bank from 3.3 billion KRW to 500 million KRW, and Citibank from 2.5 billion KRW to 300 million KRW. The reduced 5 billion KRW was reallocated equally, 1 billion KRW each, to KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup Banks.

The secondary compensation loan is a policy product where banks provide loans up to 30 million KRW at an ultra-low interest rate of 1.5% per annum to small business owners struggling due to the spread of COVID-19, who have an internal credit rating of 1 to 3. The government supports 80% of the difference between the market loan interest rate and the ultra-low interest rate (1.5%), hence the name secondary (利差) compensation loan. The loan supply target amount is about 3 trillion KRW by the end of this year.

According to the Korea Federation of Banks, the total approved loan amount from 14 banks from the 1st of last month to the 13th of this month was 1.5792 trillion KRW, about half of the target amount.

Among these, it is known that the two foreign banks have executed small business support loans amounting to around 10 billion KRW so far. In particular, they applied interest rates exceeding 5%, which was a significant difference compared to the market banks' rates of around 3.9%. SC First Bank applied interest rates in the 7% range, and Citibank applied rates in the 5% range.

With the increase in secondary compensation amounts this time, the five major banks can lend about 50 billion KRW more each.

Some criticize foreign banks for being passive in responding to COVID-19 policies. There are also opinions that the reduction in loan support amounts might actually help foreign banks manage risks better.

A financial sector official pointed out, "In this emergency situation, some banks are stepping up to support the common people, raising concerns about future risk management, but the financial authorities reducing support amounts without penalties could be seen as a special favor to foreign banks."

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