To help support small businesses, state-run financial institutions will provide liquidity worth around 4 trillion won.
South Korea’s Financial Services Commission (FSC) has agreed with financial sector self-regulators to extend support for small business loans for six months.
Since March of last year, lenders have extended the maturity date for loans to SMEs by six months to help them ease their financial burden caused by the Covid-19 pandemic.
As part of the extension agreement, lenders will grant loan maturity extensions and deferrals of principal and interest payments to SMEs and self-employed workers until the end of March 2022. Support the loan was due to expire this month.
To help support small businesses, state-run financial institutions will provide liquidity worth approximately KRW 4 trillion (USD 3.4 billion).
Stakeholders in the financial sector also agreed to work towards an orderly standardization process, amid concerns about the potential risks resulting from the accumulation of debtor payment burdens.
To ensure orderly standardization, lenders will offer debtors repayment capacity plans tailored to their specific needs, including non-payment periods of up to one year and installment payments of up to five years.
For vulnerable debtors, assistance programs will be offered through debt adjustment, and pre-training programs will be made available to business owners and SMEs.
According to Fitch Ratings, the extension will further delay recognition of bad loans from Korean banks, especially from service sectors affected by the extended social distancing measures.
However, the deterioration in loan quality is expected to be modest due to moderate and broadly guaranteed exposures of banks to directly affected sectors as well as the ongoing economic recovery, supported by an increasing pace of vaccination.
The majority of Korean bank exposures to the service sectors are secured by collateral or guarantees from government agencies.