Government Decides to Defer Interest Repayments for SMEs and Small Business Owners

With "Additional Extension Needed for SME and Small Business Loan Maturity and Interest Repayment Deferral"
Loan Maturity Extension Amount Reaches 66.3 Trillion Won as of July

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government plans to extend both the loan maturity and interest repayment deferral by an additional six months for small and medium-sized enterprises (SMEs) and small business owners affected by the novel coronavirus disease (COVID-19).

On the 3rd, a government official stated, "Support for SMEs is also connected to livelihood programs," adding, "Since concerns about the resurgence of COVID-19 remain, we are considering extending the maturity by six months along with deferring interest repayments."

This extension measure is interpreted as an effort to revive the grassroots economy by providing sufficient financial support to SMEs and small business owners struggling due to COVID-19.

Since April, the government has extended the maturity by at least six months and deferred interest repayments for SMEs and small business owners whose loans matured by September 30. According to the Financial Services Commission, as of the 17th of last month, the total loan maturity extension amounted to 66.3 trillion won, and the interest payment deferral totaled 108.4 billion won.

The ruling party, the Democratic Party of Korea, has also expressed a positive stance on this matter. On the 30th of last month, Kim Tae-nyeon, the floor leader of the Democratic Party, emphasized, "To help SMEs and small business owners, loan maturity and interest repayment deferrals should be extended further," and urged "decisive decisions from financial authorities and active cooperation from the financial sector."

In fact, SMEs have expressed the need for loan maturity extensions and interest repayment deferrals due to worsening business conditions caused by COVID-19. According to a recent survey by the Korea Federation of SMEs targeting 274 SMEs with bank loans, 51.5% answered that the additional extension period should be "until the end of next year," 28.1% said "the first half of next year," and 6.9% said "until March next year." Additionally, 78.1% of SMEs responded that both loan principal maturity extension and interest repayment deferral measures should be extended simultaneously. If business conditions worsen due to the prolonged COVID-19 situation, there is a possibility of further extensions beyond the six months.

Initially, the financial sector expressed a negative stance, citing that interest payments are used as an indicator for managing the soundness of banks. They argued that with interest payment deferrals, there is no standard to judge whether a company is normal. There are also concerns that defaults by companies applying for interest repayment deferrals could potentially spread to the financial sector. From the SMEs' perspective, there is a burden of having to pay both interest and loan principal in a lump sum after the deferral period ends.

However, the government judges that it is inappropriate to withdraw corporate support programs while uncertainties related to COVID-19 have not been completely resolved. A government official explained, "Whether interest payments are made is not an absolute criterion for judging a normal company," and added, "Providing both loan maturity extensions and interest repayment deferrals together has a real effect in alleviating corporate burdens."

Meanwhile, on March 19, the government announced a livelihood financial stability package program, including loan maturity extensions and interest repayment deferrals for SMEs and small business owners, at the first emergency economic meeting presided over by President Moon Jae-in.