[Asia Economy Reporter Eunbyeol Kim] The Bank of Korea has decided to increase the limit of its financial intermediation support loans by 8 trillion won to support small business owners and small and medium-sized enterprises (SMEs) affected by the resurgence of COVID-19.
On the 23rd, a Bank of Korea official stated, "Small and medium-sized enterprises and small business owners are still facing difficulties in securing funds," adding, "We have decided to raise the financial intermediation support loan limit from the existing 35 trillion won to 43 trillion won." This matter is scheduled to be approved at the Monetary Policy Committee meeting on the 24th.
The financial intermediation support loan system involves the Bank of Korea supplying funds to financial institutions at an ultra-low interest rate of 0.25% per annum to encourage increased lending to SMEs and self-employed individuals. The Bank of Korea had previously increased the limit by 5 trillion won twice, in February and May, totaling 10 trillion won, to support companies affected by COVID-19.
When financial institutions such as commercial banks provide loans to SMEs (including sole proprietors) struggling due to the spread of COVID-19 and report afterward to the Bank of Korea, the Bank supports these institutions with funds at the ultra-low interest rate of 0.25%. Due to the surge in loan demand from SMEs affected by COVID-19, the limit has already been exhausted, and since the maturity of the support loans is due at the end of this month, additional support was deemed necessary. A Bank of Korea official explained, "Including COVID-19 support funds, more than 80% of the total 35 trillion won financial intermediation support loan limit has been used."
Of the 8 trillion won in additional support funds the Bank of Korea plans to increase this time, 3 trillion won will be used for the existing COVID-19 affected company support. The 10 trillion won support limit will be raised to 13 trillion won, and the maturity will be extended by six months until the end of March next year. Regarding only the COVID-19 affected company support funds, 95.1% (9.5 trillion won) of the existing 10 trillion won support has been utilized.
An additional 3 trillion won will be newly provided exclusively to small business owners affected by COVID-19. This is limited to small business owners without delinquency on principal and interest, capital erosion, or business closure, and small business owners who have already received COVID-19 affected company support loans are also included in the support target. For small business owner support, the Bank of Korea will back 100% of the loan performance handled by banks.
Furthermore, 2 trillion won will be additionally supported for companies that can contribute to the growth engine of our economy and job creation. When loans for facility funds are provided to start-ups, job-creating companies, and material, parts, and equipment companies, the Bank of Korea will support financial institutions with 25% of the loan performance for up to five years. For material, parts, and equipment companies, preferential treatment is doubled to support 50%, and the loan interest rate is 0.25% per annum.
A Bank of Korea official stated, "Since March, the support funds provided by the Bank of Korea for companies affected by COVID-19 have lowered the average loan interest rate for affected companies by 41 to 122 basis points (1bp = 0.01 percentage points)."
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