COVID-19 Loan Maturity Extension and Soft Landing Measures to Be Announced Next Week

Financial Services Commission "Announcing Support Measures for a Soft Landing to Prevent Concentrated Repayment Burdens"
"Loan Forbearance Scale Only 0.34% of Total Credit... Limited Concerns of Delinquency"

[Asia Economy Reporter Kwangho Lee] The government will announce early next week the extension of loan maturities and soft landing measures for small business owners and small and medium-sized enterprises (SMEs) affected by COVID-19.

The Financial Services Commission (FSC) announced this on the 24th during a briefing following the Emergency Economic Central Countermeasures Headquarters meeting held at the Government Seoul Office.

Kim Taehyun, Secretary General of the FSC, said, "(Regarding the extension of loan maturities and interest deferral) once the extension measures end, there is a concern that struggling companies may immediately become insolvent," adding, "We plan to announce soft landing support measures together to prevent the repayment burden from concentrating all at once on borrowers."

Regarding the detailed measures, Secretary General Kim explained, "When repaying principal and interest in installments, the repayment period will be sufficiently granted beyond the deferral period, and the interest accrued during the deferral period will be maintained in total regardless of the repayment method or period," further clarifying, "In other words, no interest will be charged on the deferred interest."

He added, "If borrowers wish to repay earlier than originally planned, no early repayment fees will be charged, and the final repayment method will be decided by the borrower."

Concerning concerns about banks' soundness, he mentioned, "The scale of loans with repayment deferral accounts for only about 0.34% of total credit," and "According to simulations, even assuming all deferred loans become non-performing, the delinquency rate and the increase in delinquency rate for repaid loans are not higher than past figures."

He emphasized, "Looking at the non-performing loan ratio fixed as of 2013, it was about 1.19% in 2017, and even if fully reflected, it only reaches 0.99%, so concerns about insolvency are limited."

Additionally, he said, "Financial companies are being guided to build reserves first, and they are accumulating much more reserves than in previous years."

Since February last year, the financial authorities and financial sector have extended the maturity of principal repayments and deferred interest payments for loans to SMEs and small business owners as part of the COVID-19 crisis response. As the deadline arrived in September last year, the period was extended once more until the end of March.

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