Repayment Deferral for Closed Small Businesses... 'Corona Bill' Piling Up in Financial Sector

Delinquency Rates of Four Major Banks Fell in Q4 Last Year...
Growing Burden of Deferred Non-Performing Loans

[Asia Economy Reporter Park Sun-mi] The financial sector is accumulating bills for sharing the pain caused by COVID-19.

According to the Financial Services Commission on the 9th, a soft landing plan for the extension of maturity and repayment deferral measures currently in place to overcome COVID-19 in the financial sector is expected to be announced within this month. Despite opposition from the industry, the plan has been set to extend the measures once more, and in addition, a direction has been decided to allow even closed small business owners to defer loan repayments.

According to the Korea Credit Guarantee Fund Act, the guarantee target for small business owner guaranteed loans is limited to companies that are 'operating a business.' This means that closed small business owners are required to repay their loans in a lump sum. However, the Financial Services Commission has judged that there are difficulties for small business owners who cannot close their businesses in a timely manner due to the burden of lump-sum loan repayment, and has decided to improve the system so that even if they close temporarily, they do not need to repay the loan in a lump sum for the time being.

The Korea Credit Guarantee Fund will temporarily defer classifying loans as non-performing for closed small business owners from the 15th of this month until September 30th, and banks will maintain loans for these closed small business owners until maturity.

So far, the total amount of loans with extended maturity for lump-sum repayment across the entire financial sector is 116 trillion won (350,000 cases), the principal repayment deferral for installment repayments is 8.5 trillion won (55,000 cases), and the amount of interest repayment deferral is 157 billion won (13,000 cases).

Although small and medium-sized enterprises and small business owners were directly hit by the spread of COVID-19 last year, the asset soundness of the banking sector appears to have improved due to various support and deferral policies for affected groups. The delinquency rates of the four major domestic banks?Kookmin, Shinhan, Hana, and Woori?were between 0.16% and 0.25% in the fourth quarter of last year, lower than the 0.24% to 0.35% in the fourth quarter of 2019.

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The ratio of non-performing loans (NPLs), which are at high risk of default, is also on a downward trend in the banking sector, with Kookmin Bank at 0.41% and Hana Bank at 0.34%. Although the banking sector's asset soundness is improving, banks are increasing their loan loss provisions, reflecting concerns about deferred defaults. This is why experts are expressing concerns that asset soundness management in the post-COVID-19 era needs to be closely monitored.

The Hana Financial Management Research Institute recently stated in its '2021 Financial Industry Outlook Report' that "This year, bank soundness will show a phenomenon of deferred recognition of defaults due to the denominator effect caused by an increase in total loans through expanded financial support from the government and banks, as well as loan maturity extensions and interest repayment deferrals," and expressed concerns that "there are many factors worsening bank soundness, such as the proportion of marginal companies expected to exceed 20% due to the impact of COVID-19."

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