Concerns of 'Moral Hazard' Over Interest Repayment Deferral... Financial Services Commission Refutes "Possible Mismanagement"

"Provision Adequately Set Aside for Financial Sector"

Financial Services Commission Chairman Ko Seung-beom is attending the financial support meeting for small and medium-sized enterprises and small business owners held at the National Assembly on the 15th, talking with Assemblyman Kim Byung-wook. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Jin-ho Kim] The financial authorities have rebutted concerns that the extension of the interest repayment deferral measure, part of the COVID-19 financial support program, would lead to "moral hazard," stating that it is at a "manageable level of poor management."

On the 15th, the Financial Services Commission (FSC) stated in a press release, "The financial sector is sufficiently provisioning related reserves," affirming this position.

According to the FSC, the total amount of maturity extensions and interest repayment deferrals supported by the entire financial sector from April last year to July this year reached 222 trillion won. However, as of the end of July, the FSC explained that the total loan balance was only 120.7 trillion won, of which the ratio of loans classified as substandard or below was just 1.4% (17 trillion won).

Earlier, FSC Chairman Seung-beom Ko announced at a ruling party-government meeting held at the National Assembly that morning, "As difficulties due to COVID-19 have intensified, small and medium-sized enterprises and small business owners are requesting an extension of financial support," and decided on the third extension of the COVID-19 financial support program.

However, the financial sector is concerned about so-called moral hazard among borrowers regarding this decision. There are concerns that the prolonged COVID-19 financial support is causing an "optical illusion effect," which could increase potential insolvency. In fact, financial holding company chairpersons have conveyed to the financial authorities that the interest repayment deferral measure should end to filter out at least minimal insolvency.

Initially, the financial authorities intended to review the extension of the interest repayment deferral measure in close cooperation with the financial sector. Chairman Ko had told reporters the day before that related details would be disclosed at a meeting with major financial association heads on the 16th. However, the decision on whether to extend the measure was surprisingly announced during the ruling party-government meeting that morning. The financial sector expressed regret, saying it was close to a unilateral notification.