Financial Authorities Deliberate on Further Extension of COVID-19 Financial Support (Comprehensive)

Plan to Extend COVID Financial Support to Be Announced as Early as Next Week
Interest Repayment Deferral Likely to End Amid Concerns Over Defaults
Principal Repayment Expected to Be Extended for 6 Months Considering Quarantine Situation

[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 the damage to small business owners caused by the implementation of Level 4 social distancing, the principal repayment of loans is expected to be extended for another six months. Since Financial Services Commission Chairman Ko Seung-beom emphasized a "swift conclusion" as his first statement after taking office, specific 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 will review the specifics regarding COVID-19 loans and announce them before Chuseok."

Chairman Ko hinted at the extension of COVID-19 financial support as his first policy after taking office on the 31st of last month. His view is that the extension is inevitable given the reality faced by self-employed individuals and SMEs struggling due to the intensified social distancing measures.

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-19 financial support. It is known that former Financial Services Commission 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 are needed in areas where there are some differences. A financial sector official said, "The authorities are currently in the final stages of coordinating the details 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 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-19 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, "We will discuss that part," in response to the banking sector's demand to stop the interest repayment deferral.

The banking sector is requesting the discontinuation of the interest deferral measure because a so-called "optical illusion" effect is occurring due to COVID-19 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-19," but pointed out, "With interest rates rising, if interest is also deferred, there is concern that a greater burden may be borne after the COVID-19 situation ends."

The COVID-19 financial support program had supplied a total of 204.4 trillion KRW as of the end of June. Among this, loan maturity extensions accounted for 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.

Meanwhile, regarding this matter, the Financial Services Commission stated, "No decision has been made yet." The Commission explained, "The extension of maturity extension and repayment deferral measures is a matter that must comprehensively consider the COVID-19 quarantine situation and real economic conditions," adding, "We are currently reviewing it while listening to the opinions of the financial sector and the voices of SMEs and small business owners."

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