Discussion Accelerates on Extending 'Corona Finance' Measures Amid Pandemic Concerns

Loan Maturity Extension and More to Be Confirmed and Announced Soon
Financial Sector Concerns Rise Over Accumulated and Overlapping Potential Defaults

[Asia Economy Reporter Kim Hyo-jin] As concerns about a new wave of the COVID-19 pandemic rise, especially in the Seoul metropolitan area, financial authorities and the financial sector are accelerating discussions on extending the 'COVID-19 financial' measures currently in place. This is due to the risk that the overall real economy could rapidly contract again because of strengthened social distancing and various control measures. Concerns within the financial sector about accumulating and overlapping potential insolvencies are also intensifying.

According to financial authorities on the 18th, the Financial Services Commission plans to expedite final practical discussions to promptly finalize additional extensions of loan maturities and further interest repayment deferrals for small business owners and SMEs, which have been under discussion with the financial sector. The existing measures are applied until next month. The financial authorities intend to finalize and announce the maturity extension plan by the end of this month at the latest.

A financial sector official said, "Regarding the additional extension of loan maturities, the entire financial sector has already reached an agreement, so there are no significant obstacles in the discussions," adding, "The finalized plan may be announced earlier than expected."

Some financial companies have already accepted the additional loan maturity extension as a given fact and are preparing practical measures. For example, Woori Financial Group announced last month, as part of its 'Korean New Deal' support plan, that it would expand loan maturity extensions to minimize customer damage caused by COVID-19. It is also known that financial association heads expressed their agreement on the necessity of measures such as additional loan maturity extensions when they met with Financial Services Commission Chairman Eun Sung-soo on the 12th.

While the financial sector as a whole is aligning its steps to extend the 'COVID-19 financial' measures on a broad scale, it is true that concerns about future soundness issues are increasing in some quarters.

The scale of loans with extended maturities is a particularly heavy burden. According to data on 'COVID-19 related credit support performance' from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?the total balance of loans with extended maturities (including re-contracts) from February until the 13th of this month amounts to 35.0792 trillion KRW. The 'installment payments' of 4.028 trillion KRW, which companies were repaying in installments, were also deferred, along with 30.8 billion KRW of interest repayments.

Financial Sector: "Even if only interest repayment is deferred..."
Considering Extension of LCR Regulation Relaxation

A bank official pointed out, "It is analyzed that a significant number of borrowers who received maturity deferrals will find it difficult to properly repay their loans even after the deferral period ends," adding, "This means that a considerable amount of latent insolvency that has not surfaced is accumulating." Because the possibility of insolvency is temporarily suppressed, various financial indicators have remained quite favorable, such as the bank loan delinquency rate hitting a record low of 0.33% at the end of June.

Regarding this, a financial authority official said, "Due to various forms of deferral measures, large-scale fiscal injections, and expanded government guarantees, it is an ironic situation where financial institutions' soundness indicators cannot deteriorate," adding, "We keep in mind that if the capacity for support diminishes, these indicators could worsen significantly at any time."

Because of this, financial institutions, especially banks that bear most of the financial support burden, have consistently argued to the financial authorities that a somewhat different approach is needed at least for the additional interest repayment deferral measures. A commercial bank official said, "Borrowers who cannot even pay interest risk falling into a vicious cycle of delinquency, so it is more reasonable to let the risk surface so that both banks and borrowers can manage it."

Meanwhile, financial authorities are strongly considering extending the relaxation of the Liquidity Coverage Ratio (LCR) regulation to encourage banks to be more proactive in providing financial support related to COVID-19 loans and other assistance.

The LCR is the ratio of high-quality liquid assets to the expected net cash outflows over the next 30 days. To prepare for situations where large sums might temporarily flow out during a crisis, financial institutions must maintain the LCR at a certain level. The authorities implemented a measure in April to lower the foreign currency LCR from 80% or higher to 70% or higher, and the combined LCR of Korean won and foreign currency from 100% or higher to 85% or higher for six months.

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