[Urgent Financial Market Review] "Extend Loans Once More, but Suspend Interest Payment Deferrals"

Urgent Survey of 10 Economic Experts
Need to Release Necessary Loans Rather Than Blocking to Prevent Further Side Effects
Support Should Be Tailored Considering Repayment Ability... No Populist Promises
Artificial Early Loan Repayment Not Allowed... Fundamental Solutions Required

[Asia Economy Reporter Kwangho Lee] Eight out of ten economic experts responded that, considering the prolonged COVID-19 situation, the loan maturity extension for small and medium-sized enterprises (SMEs) and small business owners should be extended once more, but the interest repayment deferral should be stopped. They unanimously agreed that the government's failure in real estate policy has contributed to the increase in household debt, and that instead of outright blocking loans, necessary loans should be provided to prevent other side effects.

On the 14th, Asia Economy conducted an urgent survey of ten domestic economic experts, which yielded these results.

Regarding whether to extend the financial support policy scheduled to end at the end of this month, the prevailing opinion was that a "selection process" is necessary. Rather than uniform support, tailored support considering loan repayment ability should be provided. As of the end of July, the amounts for loan maturity extension and interest repayment deferral were 209.7 trillion won and 209.6 billion won, respectively.

Oh Jung-geun, president of the Korea Financial ICT Convergence Society, pointed out, "Selective support is now necessary," adding, "More than 200 trillion won has been deferred, and those who cannot even pay interest are already zombie companies."

Seo Ji-yong, professor of Business Administration at Sangmyung University, emphasized, "The passage of time does not give SMEs the capacity to repay loans," and added, "Interest should be repaid, and it is desirable to repay principal and interest like with mortgage loans while paying interest."

Kim Young-do, senior research fellow at the Korea Institute of Finance, predicted, "If interest repayment deferral is not allowed, defaults will occur," but added, "However, since the scale of defaults is not large, it will not significantly lead to financial sector insolvency."

Regarding household debt, seven out of ten experts criticized the government for trying to attribute the cause of rising real estate prices to household debt increase rather than policy failure. They said that instead of artificially tightening loans early, the distorted consumption structure should be closely examined to provide fundamental remedies.

Cho Dong-geun, honorary professor of Economics at Myongji University, criticized, "It is true that household debt management is necessary, but suddenly blocking loans is problematic," and added, "Loans should be adjusted indirectly through interest rates, etc., and suddenly reducing them quantitatively only causes market confusion."

Sung Tae-yoon, professor of Economics at Yonsei University, pointed out, "Stopping loans without revising real estate policy is undesirable," and said, "Loans should be adjusted considering income and risk factors, focusing on actual demanders."

There was also an opinion that supply should be increased to lower housing prices. Kim Dae-jong, professor of Business Administration at Sejong University, said, "It is true that household debt is a problem to be solved, but tightening loans will not solve it," and criticized, "Economic policies should be market-based; current policies harm actual demanders, one-homeowners, and newlyweds."

Regarding continuous political intervention in finance, the majority opinion was that 'political logic' should not interfere with 'economic logic.' Experts especially advised against regulating business activities such as pricing or imposing sudden regulations in unpredictable situations.

An expert who requested anonymity mentioned, "Populist financial pledges aimed at winning votes are one of the risks that can undermine financial market stability," and added, "Financial policy affects not only finance but also markets and consumers, so populist decisions should be excluded, and decisions should be made carefully through comprehensive and professional review considering the possible scope of side effects."

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