Banking Sector Lowers Loan Interest Rates for Small Businesses in Response to COVID-19

Reduction from the previous annual rate of 3-4% to 2% range
Enhanced convenience through non-face-to-face application

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] As the risk of a resurgence of the novel coronavirus infection (COVID-19) increases and small business owners suffer greater damage, the banking sector is lending support by lowering new loan interest rates for small business owners.

KB Kookmin Bank lowered the new loan interest rates for the second round of financial support loans for small business owners starting from the 27th. Previously, interest rates of up to 4.99% per annum were applied depending on credit rating, but this has changed to a fixed interest rate of 2.8% per annum for 5 years.

The support targets small business owners who are struggling due to the spread of COVID-19. Loans of up to 10 million KRW are available. For customer convenience, non-face-to-face applications are also possible through corporate internet banking and KB Star Banking.

IBK Industrial Bank of Korea also lowered the maximum interest rate of the ‘Second Financial Support Loan for Small Business Owners’ executed via internet and mobile banking from the previous 3-4% range to 2.8% per annum starting from the 20th. The bank allows all processes including loan application, guarantee issuance, and loan execution for the ‘Second Financial Support Loan for Small Business Owners’ to be completed without visiting a branch through internet and mobile banking.

Woori Bank has also lowered the interest rate for the second financial support loan for small business owners to as low as 2.73% per annum by applying a preferential rate of up to 1.0 percentage point since the 20th of last month.

The second small business loan cannot be applied for concurrently if the first loan has already been received, and it has been criticized that the loan utilization rate is falling short of expectations due to the high interest rates. Because of this, voices are growing that either people who received the first small business loan should be allowed to apply for the second loan concurrently, or commercial banks should further lower the interest rates for the second financial support loan for small business owners.

According to the ‘Weighted Average Interest Rates of Financial Institutions in July’ recently announced by the Bank of Korea, loan interest rates fell by 2 basis points from 2.72% to 2.70% in one month. In particular, interest rates on loans to small and medium-sized enterprises dropped by 3 basis points from 2.9% to 2.87%.

There is also a movement from financial authorities to assist small business owners affected by COVID-19. On the 27th, the Financial Services Commission decided to extend measures for six months in consideration of the prolonged COVID-19 situation, in cooperation with all financial sector associations including banks, insurance companies, savings banks, credit specialized companies, and mutual finance, as well as policy financial institutions.

Accordingly, small and medium-sized enterprises or small business owners who have suffered direct or indirect damage due to COVID-19 can apply for a minimum six-month extension of principal repayment maturity and interest deferral for loans maturing before March next year. However, this applies only if there is no delinquency on principal and interest, no capital erosion, no business closure, and only to existing loans taken out before March 31.

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