Financial Services Commission Encourages 'Orderly Normalization' of COVID Loans... 1-Year Grace Period Granted

Extension of Repayment Period from 3 to 5 Years
Discussion on Household Debt, Big Tech, and Other Current Issues

On the 16th, Chairman Ko Seung-beom held a financial industry meeting with Kim Kwang-soo, Chairman of the Korea Federation of Banks; Jung Hee-soo, Chairman of the Life Insurance Association; Jung Ji-won, Chairman of the General Insurance Association; Kim Ju-hyun, Chairman of the Specialized Credit Finance Association; Park Jae-sik, Chairman of the Korea Federation of Savings Banks; and Choi Sung-il, Deputy Director of the Financial Supervisory Service's Small and Micro Finance Division, at the Bankers Club of the Korea Federation of Banks in Jung-gu, Seoul, to discuss household debt management, regulatory frameworks for digital financial innovation, and other financial industry issues.

[Asia Economy Reporter Kim Jin-ho] Financial authorities have decided to induce an 'orderly normalization' in response to concerns about potential non-performing loans and accumulated repayment burdens following the re-extension of the COVID-19 financial support program. Starting from April 1 next year, when the third re-extension ends, they will assist borrowers in stable debt repayment by granting a one-year grace period and extending the repayment period.

On the 16th, Ko Seung-beom, Chairman of the Financial Services Commission, held a meeting with the heads of six associations including the Korea Federation of Banks, Korea Financial Investment Association, Korea Life Insurance Association, Korea Non-Life Insurance Association, Korea Credit Finance Association, and Korea Federation of Savings Banks at the Bankers' Hall in Jung-gu, Seoul, and announced this plan.

Previously, the government and ruling party decided the day before to re-extend the loan maturity extension and interest repayment deferral measures amounting to 222 trillion won. This was due to the continued difficulties faced by small business owners and self-employed individuals amid strengthened social distancing measures, making support unavoidable.

At the meeting, the government and financial sector reached a final agreement to extend the application deadline for the COVID-19 loan maturity extension and repayment deferral measures by an additional six months until March next year.

However, considering concerns about potential non-performing loans in financial institutions due to prolonged support measures and the issue of accumulated repayment burdens for borrowers with long-term deferrals, they decided to prepare supplementary measures for an 'orderly normalization.' This soft-landing plan will be applied from April 1 next year, when the third re-extension ends.

First, the current soft-landing measures will be reinforced to enable borrowers to repay debts stably within their repayment capacity by providing a maximum one-year grace period and extending the repayment period from the original three years to five years. Additionally, for vulnerable borrowers, the debt adjustment system will be improved to provide proactive support to reduce debt burdens. The main points include expanding the support targets of the banking sector's own pre-workout and the Korea Credit Counseling & Recovery Service's debt adjustment system.

Furthermore, about 4 trillion won in liquidity will be supported through policy finance programs, and financial burdens will be eased by measures such as long-term installment payments of loan principal and interest and reduction of guarantee fees.

The Financial Services Commission plans to review extending the related financial regulatory relaxation measures as the maturity extension and interest repayment deferral measures are extended once more. After additional review, the agenda will be submitted to the regular Financial Services Commission meeting on the 29th.

Meanwhile, the meeting also discussed recent financial issues such as ▲ household debt management and ▲ big tech's entry into the financial industry. Participants agreed on the need to strengthen household debt management and stated that the financial sector would play an active role in this. Regarding big tech's entry into finance, they emphasized the need to strive for a balance between innovation and consumer protection.

Chairman Ko said, "We will carefully review the issues discussed today during future policy implementation processes," and added, "We will continue to create opportunities to communicate frequently with the financial sector on current issues."

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