[Yoon Administration Supplementary Budget] 1.5 Trillion Won Allocated for Financial Sector Livelihood Support

[Asia Economy Reporter Song Hwajeong] Financial authorities will inject 1.5 trillion KRW to alleviate the financial burden on vulnerable borrowers. Among self-employed individuals and small business owners, distressed borrowers can receive up to a 90% principal reduction, and the supply of the Youth Sunshine Loan (Haetsalron Youth) for low-income youth will be expanded by 50%.

According to the Financial Services Commission on the 12th, a total of 1.5 trillion KRW was allocated to six financial sector livelihood support projects in the supplementary budget approved at the emergency Cabinet meeting that day.

The six projects include ▲ debt adjustment (700 billion KRW), ▲ low-interest refinancing (600 billion KRW), ▲ customized fund support (120 billion KRW), ▲ expansion of Youth Sunshine Loan supply for low-income youth (15 billion KRW), ▲ special guarantees for lowest credit borrowers (48 billion KRW), and ▲ safe conversion loans (109 billion KRW) to ease high-interest burdens and improve loan structures for actual housing demanders.

The Financial Services Commission explained, "Following the COVID-19 crisis, the high interest rates and inflation may exacerbate difficulties not only for small business owners but also for ordinary citizens, youth, and actual housing demanders," adding, "We have prepared a detailed financial sector livelihood support plan to ease the burden on vulnerable borrowers."

First, an emergency financial restructuring will be implemented to help small business owners, whose debt has become excessive during the COVID-19 period, to repay loans normally and buffer interest rate shocks. Accordingly, through the self-employed and small business owner debt adjustment program, 30 trillion KRW of distressed (or potentially distressed) debt will be purchased and debt adjustments such as long-term and installment repayment conversions and interest rate reductions will be carried out. This will be implemented from October, when maturity extensions and repayment deferrals end, and debt adjustment applications will be accepted and bonds purchased for three years from the implementation date.

The support targets are individual business owners affected by COVID-19 and corporate small business owners who have incurred distress or are at risk of distress, such as long-term arrears of 90 days or more. All borrowers will receive support for repayment schedule adjustments and interest rate reductions, and additional principal reductions will be provided for credit debts of distressed borrowers with long-term arrears. Principal reductions of 60-90% will be granted on credit debts held by distressed borrowers. The required funds will be invested as 700 billion KRW capital injection to the Korea Asset Management Corporation (KAMCO), the operator of the debt adjustment fund, with a total capital injection of 3.6 trillion KRW under consideration through additional investments after 2023.

Through the low-interest refinancing program, 7.5 trillion KRW of high-interest loans will be converted into low-interest loans. The refinancing targets are business loans of borrowers who are faithfully repaying and are eligible for the fund. Only existing loans are eligible. The loan limit is 30 million KRW, and the refinancing interest rate is up to about 7%. Under customized fund support, 40 trillion KRW for facilities and operating funds will be lent through the Korea Credit Guarantee Fund and Industrial Bank of Korea. The support limit is 100 million KRW per company, and it will be implemented sequentially from the second half of the year.

Support measures for vulnerable ordinary citizens and youth affected by rising interest rates and inflation will also be strengthened. The supply of the Youth Sunshine Loan for low-income youth will be expanded, and a special guarantee product for lowest credit borrowers will be launched. The planned supply scale of the Youth Sunshine Loan this year will be expanded by 50% from the original 200 billion KRW to 300 billion KRW. The special guarantee product for lowest credit borrowers targets those in the bottom 10% credit score bracket with annual income below 45 million KRW who have difficulty accessing existing policy financial products for ordinary citizens. The loan limit is up to 10 million KRW, with repayment methods of principal and interest installment payments over 3 or 5 years (with a grace period of up to 1 year). The loan interest rate starts at 15.9% and decreases annually depending on the loan period. The supply scale is about 240 billion KRW.

For actual housing demanders, long-term and fixed-rate loans will be expanded and efforts to ease interest burdens will be promoted. Through securitization of mortgage-backed securities (MBS) by the Korea Housing Finance Corporation, 20 trillion KRW of variable-rate mortgage loans will be converted to long-term fixed-rate loans, and loan interest rates will be reduced. Support will be provided in order of low price up to a maximum housing price of 900 million KRW during 2022-2023, and additional interest rate benefits will be offered to low-income borrowers with loans of 400 million KRW or less. This is scheduled to be implemented in the second half of the year after completion of system and program preparations.