"COVID-19 Loan Maturity Extension and Repayment Deferral Extended by 6 Months"…What Are the Side Effects? (Comprehensive)

"Only Postponing the Timing of Exposing the Insolvency"

[Asia Economy Reporter Park Sun-mi] Concerns are growing that the extension of COVID-19 loan maturity extensions and repayment deferrals until March next year will further increase potential non-performing loans. The COVID-19 financial support, which began in April last year, has been extended for the third time. Experts point out that continuous extension measures will only increase the repayment burden on long-term deferred borrowers and merely postpone the time when non-performing loans become apparent.

On the 15th, Ko Seung-beom, Chairman of the Financial Services Commission, announced at a government-party meeting on financial support for small and medium-sized enterprises and small business owners that "self-employed individuals and small business owners are experiencing ongoing business difficulties as the spread of COVID-19 worsens again, and they are earnestly requesting an extension of financial support." He stated that the loan maturity extension and interest repayment deferral measures will be extended by six months until March next year.

Financial companies agreed to the re-extension, finding it difficult to oppose due to the accelerating spread of COVID-19 and record-breaking performance. However, some financial companies and experts opposed the interest repayment deferral, citing concerns about preventing the postponement of non-performing loans.

The financial sector, considering the spread of COVID-19, agrees on the need to extend the maturity extension and repayment deferral measures but also emphasizes the urgent need to implement complementary measures for an orderly normalization. Chairman Ko also mentioned at the meeting that "considering the cumulative repayment burden on borrowers, opinions were presented within the financial sector on the need to prepare for a phased normalization," indicating concerns about side effects from the extension of the measures.

Financial Services Commission Chairman Ko Seung-beom is delivering opening remarks at the government-party consultation on financial support for small and medium-sized enterprises and small business owners held at the National Assembly on the 15th. Photo by Yoon Dong-joo doso7@

The financial authorities have decided to solidify soft-landing measures such as granting grace periods and extending repayment periods to ensure that borrowers under repayment deferral do not face excessive repayment burdens even after the deferral ends. To reduce the debt burden on borrowers struggling to repay, they plan to improve the bank sector's pre-workout system and the Credit Recovery System of the Korea Credit Counseling & Recovery Service by expanding support targets and strengthening support such as interest reductions. These are complementary measures introduced to address concerns about side effects from the extension. Along with this extension, the financial authorities will supply about 4 trillion won in liquidity through policy financial institutions.

Loan Maturity Extension and Repayment Deferral Support Amounts to 222 Trillion Won

From April last year to July this year, the loan maturity extension and repayment deferral measures have supported a total of 222 trillion won, including 209.7 trillion won in maturity extensions, 12.1 trillion won in principal repayment deferrals, and 200 billion won in interest repayment deferrals. Although the non-performing loan ratio of domestic banks stood at a record low of 0.54% as of the end of June due to continued principal and interest repayment deferrals, the prevailing opinion in the market is that this is an optical illusion.

A senior executive in charge of corporate loans at a commercial bank said, "Even considering the COVID-19 situation, the fact that small and medium-sized enterprises and small business owners cannot even pay interest means that when the measures end, it will lead to bank non-performing loans." Another bank official emphasized, "While we agree on the necessity of COVID-19 loan support, instead of deferring interest repayments, it is right to liquidate small and medium-sized enterprises and small business owners who cannot recover."

Experts also expressed concerns about the re-extension of interest deferrals.

Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University said, "If the extension continues, borrowers may lose the will to repay," advising, "Activating refinancing loans to allow short-term loans to be repaid in installments over the long term or providing services that enable switching to lower interest rates is a way to achieve a soft landing." Oh Jung-geun, Chairman of the Korea Financial ICT Convergence Society, also pointed out, "With over 200 trillion won in maturity extensions and repayment deferrals, the fact that interest cannot be paid means these are already zombie companies."

The financial authorities are also paying close attention to concerns that the repayment burden on long-term deferred borrowers is accumulating and that potential non-performing loans may arise in financial institutions. Chairman Ko stated, "Financial institutions will supervise thoroughly to manage the non-performing loan issues of deferred repayment claims without any gaps."

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