Bank Loans and Interest 80 Trillion Extended Again... Proposal for Soft Landing Measures to Financial Authorities

Negative on 'Unconditional Interest Deferral'... This Time Is the Last
"Need to Identify Insolvent Companies... Interest Should Be Added to Principal, etc."

Eun Sung-soo, Chairman of the Financial Services Commission (second from the left), is holding a meeting with heads of policy financial institutions.

[Asia Economy Reporter Kwangho Lee] Since the COVID-19 crisis, the banking sector has postponed principal maturities and interest payments on loans to support small and medium-sized enterprises (SMEs) and small business owners, with the total loan amount reaching 80 trillion won.

According to the 'COVID-19 Related Credit Support Performance' data from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?as of the 17th, the total outstanding balance of loans with extended maturities (including re-contracts) was 73.2131 trillion won (297,294 cases).

In the case of KB Kookmin Bank, the figure reported to financial authorities and the Banks Federation is in the 5 trillion won range, but this only includes cases registered as exempted by loan officers in the IT system. Applying the same criteria as other banks, the amount reaches the 15 trillion won range, according to KB Kookmin Bank.

The bank also deferred installment payments of 6.4534 trillion won (9,963 cases) from companies repaying loan principal in installments (principal repayment deferral), and interest payments of 45.5 billion won (4,086 cases) during the same period were also deferred.

Accordingly, the total amount of loans and interest with extended maturities in various forms reached 79.712 trillion won. Moreover, although the deferred interest amount is only 45.5 billion won, it is backed by 19.635 trillion won in loan principal. In other words, the five major banks are carrying potential non-performing loans related to COVID-19 amounting to approximately 82 trillion won.

As the deadline for loan extensions and interest deferrals approached at the end of March, Financial Services Commission Chairman Eun met consecutively with the heads of the five major financial holding companies on the 16th and with heads of policy financial institutions such as the Korea Development Bank on the 19th. On the 22nd, he is scheduled to meet with the chairman of the Banks Federation and other financial association heads.

After each meeting, the Financial Services Commission announced that "participants agreed on the necessity of a six-month extension of loan maturity extensions and interest repayment deferral measures." They requested cooperation from the financial sector for re-extension, and the financial sector agreed.

However, while the banking sector accepts the re-extension of loan principal maturities considering the COVID-19 situation, it holds a negative stance toward 'unconditional interest deferral.' Extending the principal maturity provides relief and allows banks to expect future loan repayments, but companies unable to pay interest are effectively non-performing.

The banking sector is reportedly proposing supplementary measures for re-extension, such as adding the accrued interest of companies with deferred interest to the principal for combined repayment, or allowing the principal and interest or only the accrued interest to be repaid over a long period of 5 to 10 years or more in installments. These programs are methods banks apply to companies undergoing restructuring.

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