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| A passerby walks with a phone in front of a bank in Seoul / Newsis |
Lenders operate support system for vulnerable borrowers to prevent insolvencies
By Anna J. Park
The total amount of loans extended by Korea's top five banks to small-and-medium-sized businesses whose deadlines on repayments of principal have been delayed for the past three years due to the COVID-19 pandemic, reached nearly 37 trillion won ($27 billion), according to financial market officials, Sunday.
This has raised concerns that the loans could potentially go bad if financially-struggling businesses and self-employed people fail to meet debt payment deadlines.
The five banks ― KB Kookmin, Shinhan, Hana, Woori, NH NongHyup ― are estimated to have extended 36.6 trillion won in loans whose repayments of principal have been delayed as of May 4. Over 95 percent of the loans, or 34.8 trillion won, were rolled over, while the remaining 1.8 trillion won was either from delays in installment-based repayments of principals or repayment of interest by corporations.
The beginning of the rollover went back to early 2020, when the banking industry decided to extend the loan repayment deadlines of principals for mom-and-pop storeowners and small-and-medium-sized businesses during the global pandemic. The support measures were supposed to end by September 2020, yet were extended five more times.
As the financial support is mostly set to end by September of this year, concerns have grown over the possibility of a spike in insolvencies in the country. Against this backdrop, the banking industry has launched emergency monitoring measures to effectively manage risk factors stemming from troubled loans.
First, the top five banks set aside in the first quarter of this year loan-loss reserves 2.4 times higher than a year ago.
Additionally, KB Kookmin Bank has been operating a consultative body to respond to a complex range of threats since late last year. The body is conducting checks on various types of risks, while strengthening monitoring and analysis of potentially insolvent businesses.
Shinhan Bank plans to reimburse parts of loan interest for small businesses, whose interest rates exceed seven percent, while lowering additional overdue interest rates for every business that ends up falling behind in payments. The bank is also operating a debt-rescheduling program for vulnerable small businesses to prevent their insolvencies.
Hana Bank launched a risk management taskforce team in February to effectively manage asset soundness, whereby the lender supports vulnerable borrowers' risk management and soft landing programs.
Woori Bank is also operating a special financial support program for small business owners on various fronts in order to support their financial soundness.
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