[Inside Chodong] Small Business Loan Extensions Again... Now It's Time to Truly Leave It to the Banks

After Four Extensions, Program Ends in September
Inflation and Rising Interest Rates Add to Challenges
Financial Authorities Should Not Shift Responsibility

Kim Ju-hyun, Chairman of the Financial Services Commission (fourth from the left), is taking a commemorative photo with the chairmen of the five major financial holding companies on the 21st at the Government Seoul Office in Jongno-gu, Seoul. From the left, Bae Bu-yeol, Vice President of NongHyup Financial Group; Ham Young-joo, Chairman of Hana Financial Group; Son Tae-seung, Chairman of Woori Financial Group; Kim Ju-hyun, Chairman of the Financial Services Commission; Yoon Jong-kyu, Chairman of KB Financial Group; Cho Yong-byeong, Chairman of Shinhan Financial Group. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Song Hwajeong] As the expiration of the extension and repayment deferral for small business owners approaches at the end of September, attention has focused on whether it will be extended again. Above all, the unfavorable economic situation was a variable. Initially, it was expected that there would be no problem with the end of the program in late September as economic activities normalized with the easing of COVID-19 social distancing and self-employed individuals resumed their businesses. However, the difficulties faced by the self-employed and small business owners have not been resolved but rather worsened due to the global supply chain disruptions caused by the Ukraine war, inflation, and rising interest rates.

Extending again would further increase the already growing potential non-performing loans, while ending the program would push vulnerable groups who cannot repay their debts into bankruptcy. In this situation, financial authorities chose a ‘nominal’ termination. Although the extension and repayment deferral will end, financial institutions will ‘voluntarily’ provide extensions. If banks’ performance were poor, this could be a burden by indiscriminately passing it on, but fortunately, banks are recording record-high profits thanks to rising interest rates, and with the added criticism of ‘profiting from interest,’ conditions are ideal for demanding banks to share the burden.

Financial Services Commission Chairman Kim Joo-hyun said in a related briefing, "Since the extension and repayment deferral have already been extended four times, extending them again could cause bigger problems," and added, "Financial companies should take responsibility, understand the credit status of their customers, and help where possible." He also emphasized the responsibility of financial companies, stating, "The primary responsibility for debt issues lies with the financial institutions that lent the money and the borrowers," and "Financial companies should provide answers even for ambiguous groups not covered by government measures."

Of course, it is appropriate that the parties who lent and borrowed the money take responsibility and resolve debt issues. However, it was the financial authorities who prepared and implemented the extension and repayment deferral measures. In March 2020, to reduce the burden on small and medium-sized enterprises and small business owners experiencing temporary liquidity difficulties due to COVID-19, guidelines were established and implemented from April. Since the financial authorities intervened between financial companies and borrowers to postpone debt repayment, they can also be seen as responsible for those loans. Moreover, the financial authorities are the ones who extended these measures four times. When criticized for shifting non-performing loans to financial institutions, Chairman Kim responded, "Debt issues are between creditors and debtors, but the government announced measures to reduce the debt burden of vulnerable groups and the general public, which benefited financial institutions," and "The government’s measures helped reduce financial sector non-performing loans."

The government is also taking various measures to reduce the burden on vulnerable borrowers and provide opportunities for rehabilitation when recovery is possible, including financial support. However, saying that financial institutions benefited because the government reduced financial sector non-performing loans sounds irresponsible considering that 90-95% of borrowers were passed on the extension and repayment deferral.

The extension and repayment deferral measures for small business owners, which have already been extended four times, must now end and be resolved. For this, the broad direction should follow the government’s framework, but since the government allowed banks to ‘voluntarily’ extend and defer repayments, what happens afterward should be left to the banks, and no further shifting of responsibility or pressure should be applied.

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