"Repay Over 10 Years" Banks Facilitate Smooth Loan Transition for Small Business Owners and SMEs

Measures to Facilitate Easy Repayment of Overdue Loan Principal and Interest Since the Outbreak of COVID-19

The streets of Myeongdong felt even colder. It was not just the subzero temperatures. Due to the resurgence of COVID-19, a decrease in tourists, and the strengthening of social distancing measures, numerous rental inquiries, temporary closure notices, and business termination announcements were posted all over the shops in this area, which was most affected. On the 7th, I captured images of about 100 closed stores on the streets of Myeongdong. Photo by Moon Honam munonam@

[Asia Economy Reporter Sim Nayoung] Banks are operating a soft landing program with exceptional conditions such as 10-year long-term installment repayments for small business owners and small and medium-sized enterprises (SMEs). This measure allows borrowers to easily repay the principal and interest on loans delayed since the outbreak of COVID-19.

In September, financial authorities are likely to end the financial support measures of 'principal maturity extension and interest deferral' for small business owners and SMEs. To prevent a sudden surge in loan defaults after the support ends, banks are managing credit soundness.

KB Kookmin Bank started the 'COVID-19 Special Operation Long-term Installment Conversion Program' on the 20th. The eligible borrowers are those who have received at least one special corporate loan support such as maturity extension or interest payment deferral for small business owners and SMEs since April 2020.

Borrowers can choose one repayment method between equal principal installments or equal principal and interest installments. The equal installment repayment period is up to 10 years, and the grace period can be selected within 6 months for borrowers with principal maturity extension loans or within 12 months for those with interest payment deferral loans.

For example, if a small business owner has postponed the maturity of a 200 million KRW loan principal through financial support over the past two years, under this program, they can pay only the interest for 6 months and then repay the principal and interest slowly over 9 years and 6 months in installments.

A KB Kookmin Bank official explained, "This is a preemptive response to the expected end of financial support in September," adding, "To prevent defaults caused by a sudden increase in repayment burden after the support ends and to support normalization tailored to individual borrowers' situations, we have prepared the industry's longest 10-year installment repayment program."

Other major commercial banks are also operating soft landing programs assuming the support will end. In the case of Shinhan Bank, borrowers can choose one of three soft landing programs. First, the installment repayment period can be extended up to three times the total deferral period (maximum 5 years), allowing the loan balance to be repaid in equal installments. For example, if the deferral period is 1.5 years, the deferred installment repayment amount is repaid over 4.5 years, reducing the monthly installment to one-third.

Borrowers can also choose to extend the interest payment deferral period up to five times the total deferral period (maximum 5 years) or extend the grace period. This method provides a 6-month or 12-month grace period to reduce the principal and interest burden for customers who find it difficult to make installment repayments or pay deferred interest immediately.

Hana Bank and Woori Bank have also prepared soft landing programs typically involving 5-year installment repayments. Common support methods include not charging interest on deferred interest and waiving prepayment penalties if borrowers repay loans earlier than originally planned.

Since early 2020, following the government’s COVID-19 financial support policy, banks have extended the maturity of loan principals and deferred interest payments for SMEs and small business owners. The support initially started with a deadline set for September 2020, but as the COVID-19 impact prolonged, the support period was extended four times by six months each.

According to the 'COVID-19 Financial Support Performance' data from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?the total amount of loans and interest with extended due dates in various forms reached 139.4494 trillion KRW as of the end of January this year. The balance of loans with extended maturity (including re-contracts) amounts to 129.6943 trillion KRW.