Go Seung-beom Administration's 'Corona Loans', Interest Repayment Deferral Likely to End

Plan to Extend COVID-19 Financial Support Likely Announced Next Week
Interest Repayment Deferral Expected to End Due to Default Concerns
Principal Repayment Extension for 6 Months Anticipated Considering Quarantine Situation

A small business owner visiting the Woori Bank headquarters in Jung-gu, Seoul, on the 6th, receiving consultation as the 'Seoul City Livelihood Innovation Finance Dedicated Window' began operation to support small and medium-sized enterprises and small business owners affected by the impact of COVID-19. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Jin-ho] The interest repayment deferral under the COVID-19 financial support program for small and medium-sized enterprises (SMEs) and small business owners is likely to end as scheduled at the end of this month. However, considering the prolonged COVID-19 pandemic, the spread of the Delta variant, and damages to small business owners caused by the implementation of Level 4 social distancing, the loan principal repayment is expected to be extended for another six months. Since Financial Services Commission Chairman Ko Seung-beom emphasized a "swift conclusion" as his first order of business, detailed measures are expected to be announced as early as next week.

According to the financial sector on the 2nd, Chairman Ko said in a meeting with reporters after attending the World Economy Institute-Shinhan Financial Group International Conference held at Lotte Hotel in Sogong-dong, Seoul, this morning, "We are reviewing specific details regarding (COVID-19 loans) and will announce them before Chuseok."

Chairman Ko hinted at the extension of the "COVID financial support" as his first policy after taking office on the 31st of last month. Considering the reality of self-employed individuals and SMEs struggling due to intensified social distancing measures, his view is that "extension is inevitable."

Accordingly, the Financial Services Commission is continuing discussions with the five major financial holding companies and major commercial banks to finalize the decision on extending COVID financial support. It is known that former Chairman Eun Sung-soo had already sought some cooperation from the heads of the five major financial holding companies before his retirement, so only detailed adjustments remain to be made in areas where there are some disagreements. A financial sector official said, "The authorities are in the final stages of coordinating detailed plans with the banking sector."

The financial authorities are strongly considering extending the loan maturity for self-employed individuals and others by six months as before. Since the daily average number of COVID-19 confirmed cases has been in the four digits for nearly two months, it is impossible to ease strong social distancing measures immediately. The financial authorities have previously stated that the quarantine situation and COVID financial support measures are closely related.

However, the interest deferral measure is being considered for discontinuation. Since the scale is only about 200 billion KRW, stopping it immediately is not expected to worsen the difficulties of small business owners. Chairman Ko also hinted at the possibility of discontinuation on the 31st of last month, saying, "(Regarding the banking sector's demand to stop interest repayment deferral) we will discuss that part."

The banking sector is demanding the discontinuation of the interest deferral measure because a so-called "illusion effect" is appearing due to COVID financial support. Although the number of small business owners who have closed due to COVID-19 has surged, the non-performing loan ratio of banks is at an all-time low. According to the Financial Supervisory Service, as of the end of June, the non-performing loan ratio of domestic banks was 0.54%, down 0.08 percentage points from the end of the previous quarter. A banking sector official said, "We agree with the intention to extend support for small business owners who are in great difficulty due to COVID," but pointed out, "With interest rates rising, if interest repayment is also deferred, there is concern that a greater burden may be borne after the COVID situation ends."

Meanwhile, as of the end of June, a total of 204.4 trillion KRW has been supplied under the COVID-19 financial support program. Among this, loan maturity extensions amounted to 751,000 cases, totaling 192.5 trillion KRW. Principal repayment and interest repayment deferral measures were at 1.17 trillion KRW (76,000 cases) and 203.2 billion KRW (15,000 cases), respectively.

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