COVID-19 SME Loan First Support Limit Nearly Reached
Continued Support for Affected Businesses... "Contributing to Reducing Interest Burden"
[Asia Economy Reporter Kim Eun-byeol] The Financial Monetary Policy Committee of the Bank of Korea announced on the 13th that it plans to increase the limit of the Financial Intermediation Support Loan (hereinafter referred to as Geumjungdae) by 5 trillion won to support small and medium-sized enterprises (SMEs) and individual business owners struggling due to the novel coronavirus infection (COVID-19).
According to the Bank of Korea, the Monetary Policy Committee will decide at the meeting on the 14th to increase the Geumjungdae limit from the existing 30 trillion won to 35 trillion won. Earlier, on February 27, the Bank of Korea increased the Geumjungdae limit by 5 trillion won from 25 trillion won to 30 trillion won as the number of COVID-19 affected companies surged. As of the end of last month, about 81% of the limit had been used, and in some regions, it was fully utilized. Initially, there were concerns in the market that loans using Geumjungdae might be sluggish, but the limit was filled in just over two months since implementation. Since the spread of COVID-19 is still ongoing, the support limit for affected companies will be increased to operate a total of 10 trillion won.
The increased limit will be allocated similarly to the previous time, with 1 trillion won for the Seoul area and the remaining 4 trillion won for other regions. The support target is working capital loans with a maturity of less than one year for SMEs (including individual business owners) affected by the spread of COVID-19.
From the implementation on the 18th until the end of September, the Bank of Korea will basically support 50% of the loan performance handled by banks. For loans to individual business owners and low-credit companies, the support rate will be preferentially increased (75-100%). The loan interest rate applied when commercial banks procure funds from the Bank of Korea is 0.25% per annum. The Bank of Korea lowered the Geumjungdae interest rate from the previous 0.5-0.75% per annum to 0.25% in March.
However, the loan limit per company is 500 million won, which is half the limit of 1 billion won per company during the first support. A Bank of Korea official said, "The limit was lowered so that more affected companies can receive support evenly," adding, "The average support size per company in the first support was about 210 million won."
He continued, "This measure is expected to improve financial accessibility and financial conditions for SMEs (including individual business owners) struggling due to COVID-19."
Meanwhile, due to the increase in the Geumjungdae limit and the reduction of the Geumjungdae interest rate, bank loans to COVID-19 affected companies have recently increased significantly. Bank loans to affected companies increased by about 6 trillion won in March and April. The average loan interest rate for COVID-19 affected companies' support funds in March (newly handled amount, based on the four major commercial banks) was 2.84%, which was 40-120 basis points (1bp=0.01 percentage points) lower than other SME loan interest rates. A Bank of Korea official said, "It is evaluated that this contributed to increasing the availability of funds for COVID-19 affected companies and reducing their interest burden."
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