COVID-19 Affected Individual Debtors Granted Up to 1 Year Principal Repayment Deferral

[Asia Economy Reporter Kim Hyo-jin] Financial authorities have decided to defer the principal repayment of debts for individual debtors at risk of delinquency due to the impact of the novel coronavirus infection (COVID-19) for up to one year.

This is an expansion of the 'Pre-Workout Program' to prevent household loan borrowers from becoming financial delinquents due to unpaid leave or other circumstances caused by COVID-19.

The Financial Services Commission announced on the 8th that it discussed the "Strengthening Support Measures for Vulnerable Individual Debtors Related to COVID-19" at the 4th Emergency Economic Meeting chaired by President Moon Jae-in.

The Pre-Workout is a system that provides preemptive support to prevent financial delinquency by fully waiving overdue interest, lowering interest rates, and extending repayment periods.

Since February, when the impact of COVID-19 intensified, those whose monthly income has decreased due to unpaid leave or loss of work and whose income is less than their monthly debt repayment amount after deducting living expenses are eligible. Principal repayment deferral for unsecured loans or guaranteed policy microfinance loans (such as Haetsalron and Bakkwo Dream Loan) is possible from 6 months up to a maximum of 1 year.

Individual business owners can also receive benefits for household unsecured loans taken out in their personal name. This applies to loans contracted before April 8 of this year. For loan balance increases or new loans after the 9th, application may be excluded at the discretion of the financial institution.

All financial sectors will participate. Policy microfinance guarantee institutions (Korea Inclusive Finance Agency and National Happiness Fund) will also extend guarantee periods. The program will be implemented from the end of this month until the end of the year, with possible extensions if necessary.

Multiple debtors who have loans from several financial institutions can adjust multiple debts at once through the debt adjustment system of the Credit Recovery Committee. This applies to those whose monthly income has decreased significantly since February.

For short-term delinquents under 3 months, principal repayment can be deferred for up to 1 year. For long-term delinquents over 3 months, up to 70% of the principal will be reduced and interest waived. The remaining principal can be repaid in long-term installments over up to 10 years.

This will also be implemented from the end of this month until the end of the year, with possible extensions if necessary. All financial sectors, about 1,500 lending companies, approximately 200 securitization companies, and about 200 bankruptcy corporations will participate.

For delinquents who are difficult to handle at the level of individual financial companies or the Credit Recovery Committee, the Korea Asset Management Corporation (KAMCO) will support by purchasing debts worth about 2 trillion won. Debt collection will be suspended for debtors of bonds purchased by KAMCO.