"Self-Employed Loan Extensions Started During Shincheonji, Extended Through Omicron... Criticism of Bad Debt Bomb"

Financial Services Commission Announces Fourth Extension

Potential Non-Performing Loans Increase as Loan Maturity Extensions Lengthen
Burden on Financial and Banking Sectors...

COVID-19 Cases Surge Just Before 1st and 2nd Extensions End
Repeated Extensions Followed Amid the Atmosphere
Omicron Spread in March Key to Ending 3rd Extension

[Asia Economy Reporter Sim Nayoung] Financial authorities have decided to extend once again the maturity extension and principal and interest repayment deferral measures for small business loans, which were scheduled to end in March. Introduced on April 1, 2020, immediately after the Daegu Shincheonji COVID-19 outbreak, this measure has now been extended for the fourth time due to the spread of the Omicron variant. Small business owners whose loan maturities were approaching have breathed a sigh of relief, but as the scale of loan defaults grows, criticism has arisen that this is merely "passing the bomb."

The Financial Services Commission (FSC) has announced extensions four times so far (1st from September 2020 to March 2021, 2nd from March to September 2021, 3rd from September 2021 to March 2022). The first extension was a government decision in response to the difficulties faced by small business owners due to strengthened social distancing. During the second extension, the FSC considered ending the measures, but the spread of COVID-19 prevented this. While the number of new cases was in the hundreds as of mid-September 2020, it rose to the thousands by December and continued at several hundred cases until March the following year, delaying the termination.

The same situation occurred just before the end of the third extension in September of that year. From July, confirmed cases exceeded 1,000, reaching 2,000 in August, and on September 25, just before the maturity ended, cases surpassed 3,000. At that time, social gathering restrictions limited private meetings to four people before 6 p.m. and two people afterward. Nationwide protests by small business owners condemning the government for only extending social distancing measures erupted, forcing the FSC to decide on the third extension.

This fourth extension was led by FSC Chairman Ko Seung-beom. At a meeting with heads of commercial banks held at the Bankers' Hall on the 28th of last month, Chairman Ko explained the background of the extension decision, saying, "We have implemented maturity extension and repayment deferral measures for small and medium-sized enterprises (SMEs) and self-employed individuals affected by COVID-19 over the past two years. However, due to the Omicron variant and others, the business conditions of SMEs and the self-employed have still not recovered to pre-COVID-19 levels."

Financial Services Commission Chairman Ko Seung-beom is taking a commemorative photo with major commercial bank CEOs attending the "Financial Services Commission Chairman Invitation Bank CEOs Meeting" held at the Bankers Club of the Korea Federation of Banks in Jung-gu, Seoul, on the 28th. At the meeting, Chairman Ko and the bank CEOs discussed measures to extend the maturity and interest repayment deferral of loans for small business owners. Photo by Kang Jin-hyung aymsdream@

The financial authorities had planned to end COVID-related financial support in March this year, but the political sphere strongly demanded an extension of the maturity extension and repayment deferral measures ahead of the presidential election. The National Assembly, when approving the supplementary budget on the 21st of last month, included a supplementary opinion stating, "The government should promptly prepare and implement measures to further extend the maturity extension and repayment deferral measures across all financial sectors."

This fourth extension decision increases the likelihood of accumulating potential non-performing loans. According to the FSC, the total amount of loans and interest whose repayment deadlines have been extended in various forms up to the end of January this year since support began reached 139.4494 trillion KRW.

According to the FSC, among the SME loan balance of 132 trillion KRW, which is approaching the end of the maturity extension and repayment deferral in March, about 10% annually (approximately 500 billion KRW) of the group classified as 'high-risk'?those who have deferred interest payments with a principal balance of 5 trillion KRW?are being processed as defaults. This means that among small business owners who have received interest repayment deferrals, there are continuing cases of default due to failure to repay loans borrowed from other financial institutions besides the bank that granted the deferral.

At the meeting between FSC Chairman Ko Seung-beom and heads of commercial banks, some bank heads reportedly expressed concerns about the repeated maturity extension measures. When asked by reporters whether the commercial bank heads expressed concerns, Chairman Ko said, "They did not express outright opposition, but opinions were raised that we cannot continue to extend (the maturity extension measures) indefinitely and that we need to discuss how to devise an exit strategy."

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