[Financial Services Commission Report] An Additional 15 Trillion+ Won Invested to Support Funding and Restructuring of COVID-19 Affected Companies

Promotion of Introducing the 'Industry-specific Corporate Finance Stability Index'

[Asia Economy Reporter Kim Hyo-jin] Financial authorities have decided to newly invest more than 15 trillion won to help companies in crisis due to the impact of the novel coronavirus infection (COVID-19) and to restructure corporate frameworks. They also plan to develop an 'Industry-specific Corporate Finance Stability Index' to systematically manage the soundness of corporate debt.

The Financial Services Commission announced the 2021 work plan containing these details on the 19th.

The financial authorities will continue to operate a support program worth '175 trillion won + alpha (α)' for companies temporarily facing liquidity shortages due to COVID-19, while establishing a new support program worth 1 trillion won. This includes measures such as lowering loan interest rates or providing new funds to companies struggling to repay principal and interest. Additionally, they plan to launch a new program worth '1 trillion won + alpha' to support financial structure improvement and reduction of financial costs.

For companies experiencing structural difficulties amid environmental changes, the financial authorities intend to actively encourage business restructuring and proactive corporate restructuring. To this end, policy financial institutions will support a total of 13 trillion won in business restructuring and facility investment funds within this year. A facility sale support program for companies approved for business restructuring will also be introduced. In this program, Korea Asset Management Corporation (KAMCO) will pre-purchase equipment that can be stored and traded by the Machinery Exchange.

The application period for the 40 trillion won Industrial Stabilization Fund (ISF), which is set to expire at the end of April this year, is expected to be extended. The operation period of the support program for subcontractors in the industrial sector will also be extended beyond early next month.

The financial authorities have also set a plan to modernize the corporate finance inspection system and establish a continuous monitoring system. This aims to lay the foundation for systematically analyzing the financial sector's industry-specific exposure (risk exposure).

As part of this plan, the financial authorities will develop the 'Industry-specific Corporate Finance Stability Index.' This index will select and quantify macroeconomic, industrial, and financial indicators to check corporate debt risk factors. Based on research projects conducted this year, they plan to review the development and explore utilization methods through pilot applications.

Alongside this, the financial authorities will build a database (DB) platform to concentrate and manage data related to corporate business conditions and financial sector exposures.

Additional Extension of Loan Maturity and Interest Repayment Deferral to Be Decided Next Month

With the need to extend once again the loan maturity extension and interest repayment deferral for small business owners and SMEs affected by COVID-19, which is currently implemented until the end of March, the financial authorities will finalize specific measures next month after gathering opinions from the financial sector and industry.

When measures such as interest repayment deferral normalize with the recovery of the real economy, the financial authorities plan to devise a soft landing strategy to prevent the burden from concentrating suddenly on borrowers such as small business owners. They also plan to encourage the financial sector to strengthen loss absorption capacity through loan loss provisions and capital expansion in preparation for the accumulation of non-performing loans due to maturity extensions.

The financial authorities intend to strengthen risk management of household debt, including rapidly increasing credit loans driven by the 'debt investment (debt-financed stock investment)' craze, while also aiming for a soft landing through appropriate management. For example, they plan to respond flexibly with the goal of restoring the household loan growth rate to the pre-COVID-19 level of 2019 within the next 2 to 3 years.

They will also consider applying differentiated measures for financial companies with a high proportion of unnecessary loans, extending or normalizing financial regulations accordingly.

Measures to establish a repayment ability-focused loan screening system, such as switching the Debt Service Ratio (DSR) management method to borrower-level, will soon be prepared. To strengthen management of large credit loans, which have rapidly increased in recent years, they will also promote mandatory principal installment repayments for credit loans exceeding a certain amount.