Extension of COVID Loan Maturity and Interest Repayment Deferral... Soft Landing Plan to Be Announced Within This Month

Financial Services Commission 'Financial Industry Bureau 2021 Work Plan'
"Borrowers' Repayment Burden Should Not Be Concentrated All at Once"

Eun Sung-soo, Chairman of the Financial Services Commission / Photo by Jin-hyung Kang aymsdream@

[Asia Economy Reporter Park Sun-mi]#. Mr. A, who operates a restaurant by repaying the principal in installments of 3 million KRW per month, agreed with the banking sector last October to reduce the installment repayment amount from 3 million KRW to 1.5 million KRW per month after sales declined due to the spread of COVID-19. However, when sales plummeted again in December due to strengthened social distancing measures, he reapplied for repayment deferral and applied for and received support from the Small Business Management Stabilization Fund (20 million KRW, 5 years at 2.99%) to secure insufficient operating funds. Mr. A can discuss with the bank and decide on a plan to repay the deferred principal in installments after the deferral period ends in order to avoid a sudden concentration of repayment burden when he reapplies for repayment deferral in June.

The Financial Services Commission’s Financial Industry Bureau has set the smooth landing of loan maturity extensions and repayment deferrals as one of its key tasks this year. Along with the smooth landing of temporary financial measures to overcome the COVID-19 crisis, it is determined to strengthen risk management in the financial industry for sound management.

On the 3rd, the Financial Services Commission announced that it plans to announce a smooth landing plan for the maturity extension and repayment deferral measures currently implemented across the entire financial sector to overcome COVID-19 within this month. The application period for maturity extension and repayment deferral measures was originally until the end of September last year but was extended once until the end of March. So far, the total amount of maturity extensions for lump-sum repayment loans across the entire financial sector is 116 trillion KRW (350,000 cases), principal repayment deferrals for installment repayments amount to 8.5 trillion KRW (55,000 cases), and interest repayment deferrals amount to 157 billion KRW (13,000 cases).

Kwon Dae-young, Director of the Financial Industry Bureau at the Financial Services Commission, explained, "Considering the COVID-19 quarantine situation, real economy trends, and the soundness of financial companies comprehensively, we judged that an extension of the measures is inevitable. We plan to prepare and announce specific plans after sufficient consultation with stakeholders such as the financial sector, SMEs, and small business owners."

He added, "Especially when normalizing the deferral measures, we are also considering preparing smooth landing support plans in the financial sector so that the repayment burden of borrowers does not concentrate all at once. After the repayment deferral ends, we plan to induce various long-term and installment repayments so that individual borrowers can choose repayment methods suitable to their situations."

Financial Services Commission: COVID-19 Situation Unfavorable,
Maturity Extension and Repayment Deferral Measures Inevitable

For borrowers experiencing liquidity difficulties despite maturity extensions and repayment deferrals, policy financial institutions will operate smooth landing support programs, and financial sector’s own programs such as refinancing loans will also be actively utilized.

Temporary financial regulatory easing measures currently implemented to respond to COVID-19, such as LCR regulation relaxation (until the end of March) and loan-to-deposit ratio regulation exemption (until the end of June), are also being reviewed for extension considering economic conditions. Even when normalizing due to improvement in the COVID-19 situation, the intention is to provide stakeholders with sufficient time to adapt.

Furthermore, to ensure sound management of financial companies during the COVID-19 situation including maturity extensions, capital adequacy such as provisioning will be actively promoted.

Director Kwon said, "For banks (holding companies), the principle is to pay dividends within 20% of profits, and the dividend payout ratio is expected to decrease by about 5 percentage points compared to last year. Under normal circumstances, we would not interfere with banks’ (holding companies’) dividend policies, but now is the time when capital adequacy is necessary so that banks’ functions can be activated and maintained to overcome the COVID-19 crisis."

He added, "The recommendation to refrain from bank dividends is not unique to Korea; Europe and others have also recommended dividend restraint to banks, and the international credit rating agency Moody’s has given a positive evaluation on this. Although no separate recommendations have been made to mutual finance and secondary financial sectors, many are under financial holding companies, so we believe that management and shareholders will decide at an appropriate level."

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