108 Trillion Won in COVID Loan Extensions and Interest... "Need to Address Poor Management"

On the 23rd, when the heatwave showed no signs of easing, citizens visiting a department store in downtown Seoul were enjoying shopping. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Oh Hyung-gil] It has been confirmed that the total amount of loans for which banks postponed principal maturity and interest payment deadlines to support small and medium-sized enterprises (SMEs) and small business owners after the spread of COVID-19 last year has reached 108 trillion won.

According to the loan support performance data related to COVID-19 from the five major commercial banks as of the 22nd of this month, the balance of loans with extended maturity (including re-contracts) totaled 99.7914 trillion won (415,525 cases).

The 'installment payment amount' of 8.4129 trillion won (14,949 cases) for companies repaying loan principal in installments was also deferred, and interest payments of 54.9 billion won (4,794 cases) during the same period were postponed as well.

The total amount of loans and interest with extended payment deadlines in various forms reached 108.2592 trillion won.

Considering that the interest rate on COVID-19 support loans for SMEs and small business owners is usually around 2 to 3%, assuming an average interest rate of 2.5% applied to the total deferred interest amount (54.9 billion won), it implies that 2.196 trillion won with uncertain repayment prospects is also included behind the deferred interest by the banking sector.

The financial sector previously extended the maturity and payment deferral deadlines twice, each by six months, in September last year and March this year. Although the deadline at the end of September is approaching, the atmosphere in the banking sector and financial authorities suggests a high possibility of a third extension.

This is because the difficulties faced by SMEs and small business owners have increased due to the fourth wave of COVID-19, and financial groups that posted record-high profits one after another in the first half of the year find it difficult to outright refuse the authorities' request for 'sharing the pain.'

However, the banking sector's stance is that for companies on the brink that cannot even pay interest, rather than blanket repayment or deferral extensions for risk management, a 'soft landing' program should be applied first.

An official from a commercial bank said, "From mid-this month, I understand that financial authorities and executives in charge at individual commercial banks have been exchanging opinions on loan maturity extensions and interest payment deferrals through meetings and other means."

For companies saying "I can't even pay interest right now," urgent measures are necessary, and it is important to carefully consider whether mere 'life support' through interest deferral is sufficient. Moreover, from the perspective of companies on the brink, the lump sum interest payment due at the end of the deferral period could become an even greater burden.