Loan suspension program extended for another 6 months

Economy

Published: 27 Sep. 2022, 16:18 Updated: 27 Sep. 2022, 18:35

Loan suspension program extended for another 6 months

Financial Services Commission Chairman Kim Joo-hyun announces the extension of the loan repayment suspension program in a meeting with local banks in Myeong-dong on Tuesday. [YONHAP]

Loan suspensions have been extended for small businesses to protect them from rising interest rates.

The program, which was supposed to end at the end of the month, has been extended for six months.

According to the Financial Services Commission (FSC) on Tuesday, the extensions could be granted as far as Sept. 2023 under certain conditions, and maturities could be extended up to three years with the agreement of the lender.

The FSC stressed that the forbearance is to give more time to small businesses facing cash shortages.

This is the fifth time that the financial authority has extended the loan suspension program, which first was adopted in April 2020 to support small businesses during the pandemic.

FSC Chairman Kim Joo-hyun said that the latest extension is different from the previous programs as the focus is on helping those with debts preemptively workout a payment plan during the suspension period so that when things normalize, they can pay back what they owe.

"For those struggling to repay their debts, we are giving them a choice through debt readjustment programs, including the New Start Fund," Kim said.

The New Start Fund, which will be established next month, allows the extension of payments over longer terms. The state-own Korea Asset Management Corp. will take on 30 trillion won ($21 billion) of bad debt.

At most, 400,000 will be eligible for the bad-debt adjustment program.

"We have discussed this with the financial industry for the past two months," Kim said. "We are approaching on two tracks — easing debt payments and normalizing businesses."

He said the government requested the cooperation of the financial companies, arguing that they can only thrive when their customers do better.

Some 362.4 trillion won of loans have been covered by the programs, with 141 trillion won from 570,000 borrowers still covered, including 124.7 trillion won with the maturities extended.

The economy, which was expected to enter the recovery phase with the lifting of social distancing regulations earlier this year, is facing major headwinds in the form of inflation, high energy prices and the collapsing won.

Higher rates in the United States have put pressure on the Bank of Korea, which had been working to raise rates at a measured pace.

Last week, Gov. Rhee Chang-yong raised the possibility of more aggressive tightening as the U.S. Federal Reserve signaled continued hawkishness.

"With the U.S. Federal Reserve forecast to raise 75 basis points and 50 basis points in the two remaining sessions, the possibility of the Bank of Korea raising the interest rates 50 basis points each in October and in November has increased," said Cho Yong-gu, a Shinyoung Securities analyst.

According to the Financial Supervisory Service, as of end of July, 0.22 percent of bank loans were overdue, down 0.05 percentage points on year and up 0.02 percentage points on month.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]