Banks to Expand Support for Vulnerable Borrowers and Social Contributions "Fulfilling Social Responsibility"

'Formation of a Consultative Body for Smooth Extension of Maturity and Repayment Deferral... Discussions on Support for Vulnerable Borrowers
Bank-Specific Support Programs Tailored to Each Borrower Group Including Small Business Owners, Households, and Youth
Targeting Over 1 Trillion Won in Social Contribution Projects This Year'

[Asia Economy Reporter Yu Je-hoon] Amid the expanding burden on the working-class economy due to the global complex crisis, the banking sector has decided to actively support vulnerable borrowers and engage in social contribution projects to fulfill its social responsibility.

On the 10th, the Korea Federation of Banks issued a press release stating, "As responsible members of our society, the banking sector will cooperate with government policies to share the burden on the working-class economy and will actively implement voluntary support measures."

According to the Federation, the banking sector will first provide a soft landing support even after the COVID-19 financial support, which is scheduled to end at the end of September. For not only normal borrowers but also those whose financial condition has temporarily deteriorated, banks will prevent a sudden drop in credit ratings, extend maturities as much as possible, and avoid disadvantages in interest rates and credit limits.

For borrowers with delinquent principal and interest, capital erosion, arrears, or signs of insolvency, support will be provided through linkage with the government’s New Start Fund or banks’ own debt adjustment programs. The Federation said, "For matters requiring joint response from the financial sector, we will actively strive to establish reasonable measures through the 'Consultative Body for Soft Landing of Maturity Extension and Repayment Deferral,' which includes financial authorities."

The banking sector will also waive prepayment penalties for Safe Conversion Loans and low-interest refinancing programs. For example, if a borrower who took out a 3-year variable-rate mortgage loan of 100 million KRW (with a prepayment penalty rate of 1.2%) refinances the outstanding loan balance (principal) with a Safe Conversion Loan after one year, the banking sector will waive the prepayment penalty on the existing loan, reducing the borrower’s burden by about 800,000 KRW.

Furthermore, the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) will implement a program to reduce the burden on low-credit, diligent interest-paying customers by discounting high-interest rates and using the discounted interest amount to repay the loan principal. When a low-credit, diligent interest customer extends a personal credit loan, if the applied interest rate exceeds a specific rate set by the bank, the excess interest amount will be automatically used to repay the loan principal, and the prepayment penalty for principal repayment will also be waived.

Banks will autonomously implement various financial support programs considering their characteristics and customers’ individual situations. For small business owners, loan interest rate reductions, long-term installment conversions, and preferential interest rates will be provided. For example, Shinhan Bank plans to run the '119 Program,' which reduces interest rates and extends maturities for individual business owners facing temporary liquidity crises, while Gyeongnam Bank will fully waive overdue interest for small business owners affected by COVID-19 up to a limit of 10 billion KRW.

For the working class and youth, loan interest rate reductions, interest support, high-interest deposit products, and low-interest jeonse and monthly rent loans will be promoted. KB Kookmin Bank will lower the new loan interest rate by 1 percentage point (p) for low-income and micro-business working-class financial products, and Hana Bank will launch a high-interest savings product (Youth Tomorrow Savings Account) with an annual interest rate of 5% for recipients and near-poor youth.

Social contributions will also be strengthened. Following a total social contribution of 1.0617 trillion KRW last year, the banking sector plans to carry out related projects worth over 1 trillion KRW this year as well. The Federation stated, "In addition to the announced measures, we will faithfully fulfill our responsibilities as members of society and do our best to share the pain of vulnerable borrowers."