[Initial Perspective] Will the Extension and Repayment Deferral for Small Business Owners Really End?

[Asia Economy Reporter Song Hwajeong] With the expiration of the loan maturity extension and repayment deferral measures for small business owners just two weeks away, statements from the government and political circles have been emerging one after another, increasing the likelihood of another extension. On the 15th, President Yoon Seok-yeol held a luncheon meeting with Lee Chang-yong, Governor of the Bank of Korea, Kim Ju-hyun, Chairman of the Financial Services Commission, and Lee Bok-hyun, Governor of the Financial Supervisory Service, and instructed, "Regarding the maturity extension and repayment deferral measures for small and medium-sized enterprises and small business owners that expire at the end of September, the financial authorities should actively consult with the financial sector to ensure that the repayment burden does not increase." On the same day, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said at the National Assembly's Planning and Finance Committee plenary session regarding the extension of the maturity extension and repayment deferral measures, "I understand that the financial authorities are in the final stages of consultation with the financial industry, taking into account various current situations," and added, "It will not take long to make a decision," implying that an extension plan will be announced soon. Earlier this month, Chairman Kim also mentioned the possibility of an extension right after a meeting with the small and medium-sized enterprise and small business sectors.

Political circles are also urging for countermeasures. On the 18th, the People Power Party Policy Committee demanded that the financial authorities, having formed the 'Maturity Extension and Repayment Deferral Soft Landing Consultative Body' since July in relation to the termination of the small business owners' maturity extension and repayment deferral measures, prepare alternatives so that borrowers can receive sufficient opportunities for normalization and support tailored to their situations.

Due to direct damages such as business hour restrictions caused by COVID-19, small business owners faced increasing difficulties, and the loan maturity extension and repayment deferral measures were established to alleviate these hardships. Since they were unable to operate their businesses properly, the measures aimed to delay debt repayment to reduce their burden. However, as the COVID-19 situation lasted longer than expected, the maturity extension and repayment deferral measures, which began in April 2020, have been extended four times since then. Now that business operations have almost normalized and the impact of COVID-19 is no longer a significant issue, another challenge has emerged: inflation and interest rate hikes. As prices and interest rates soar, small business owners are once again facing difficulties.

According to the Financial Services Commission, as of the end of June this year, loans to individual business owners increased by approximately 304 trillion won (43.9%) compared to the end of 2019. The number of multiple debtors increased 4.4 times. During the COVID-19 period, businesses barely managed to survive through loans, but now, as they try to resume operations, the interest burden from accumulated loans has ballooned due to rising interest rates. Therefore, the government has introduced various measures, stating that it cannot impose unbearable interest burdens on those in difficulty. Through a new start fund worth 30 trillion won, debt restructuring will be provided for delinquent borrowers among small business owners, and 41.2 trillion won worth of low-interest special funds will be supported for normal borrowers. For temporarily crisis-affected borrowers, to prevent the expansion of potential insolvency due to rising interest rates, high-interest non-bank loans will be refinanced into low-interest loans.

Repeated extensions of the small business owners' maturity extension and repayment deferral measures are by no means desirable. While assistance can be provided to overcome unavoidable crises, if support continues indefinitely, who would strive to repay their debts? The ongoing moral hazard controversy persists, and those who repay their debts diligently and those in the blind spots of support inevitably experience relative deprivation. Due to the deferral measures, accurate aggregation of the scale of insolvency has not been possible, and concerns about insolvency are growing.

Lee Bok-hyun, Governor of the Financial Supervisory Service, recently stated at a press briefing regarding the small business owners' maturity extension and repayment deferral measures, "We will not blindly extend the same content in the same way." As Governor Lee said, we hope for a wise soft landing plan that everyone can accept, rather than a simple identical extension.

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