New Report "Small Business Loans Expected to Have 30% Default Rate by 2027"

Estimated Cumulative Default Rate of 14% by the End of 2023
"Measures Needed to Cover Funding Shortfalls and Reduce Cumulative Defaults"

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The cumulative default rate of the Small Business Commissioned Guarantee by the Korea Credit Guarantee Fund (KODIT) is projected to reach 14% by the end of this year and could rise to as much as 30% by 2027. Concerns have been raised about the need to secure additional funding and implement long-term measures.

According to data titled "Expected Default and Subrogation Amounts at the End of 2023 and Projections for 2027," submitted by KODIT to Kim Hee-gon, a member of the National Assembly’s Political Affairs Committee from the People Power Party, the default rate for the Small Business Commissioned Guarantee stood at 9.17% as of the end of June. The estimated rate by the end of this year is 14.02%. KODIT forecasts that the cumulative default rate could reach up to 30% by 2027 against the total supply amount of KRW 7.4309 trillion.

The Small Business Commissioned Guarantee is a program where banks, backed by KODIT guarantees, can lend up to KRW 40 million to small business owners. It was temporarily introduced in May 2020 to support small businesses struggling due to COVID-19. Initially, it was implemented with a two-year grace period and a three-year installment repayment plan. Some borrowers began principal repayments last year, but to ensure a smooth transition, the grace period was extended from two to three years, so most repayments have started in earnest since June this year.

The amount KODIT must repay on behalf of borrowers through subrogation is also expected to increase. When preparing the 2023 fund operation plan, KODIT estimated the subrogation amount at KRW 364.6 billion by the end of this year, but this was raised to KRW 585.2 billion in the 2024 fund operation plan. The default amount nearly doubled during the same period, increasing from KRW 378 billion to KRW 655.5 billion. This is attributed to the slowdown in economic recovery and the onset of principal repayments starting in June this year.

Considering the current default trends and the increase in subrogation amounts, KODIT anticipates needing approximately KRW 450 billion in additional funds next year. Accordingly, it has requested the Ministry of Economy and Finance to allocate these funds to cover the shortfall in subrogation in the 2024 fund operation plan. Lawmaker Kim emphasized, "Securing additional funds for next year is urgent," but also pointed out, "Measures to reduce cumulative defaults are necessary to prevent an expansion of subrogation, considering the pace of economic recovery."

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