Banks to Provide 400 Billion KRW Support for SMEs Burdened by High Interest Rates

Bankers Association Establishes Voluntary SME Support Program

[Asia Economy Reporter Yu Je-hoon] The banking sector, centered on the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), will provide approximately 400 billion KRW to alleviate the high-interest burden on small and medium-sized enterprises (SMEs).

The Korea Federation of Banks announced on the 26th that it has prepared a voluntary support program to reduce the financial burden on SMEs in accordance with the SME support measures announced by the government on the 11th.

According to the Korea Federation of Banks, the target borrowers of this support program are about 285,000 SMEs, with a target loan balance of approximately 50 trillion KRW and relief benefits amounting to about 400 billion KRW. First, the banking sector will provide about 357 billion KRW to reduce the interest burden on SME borrowers.

The five major banks operate a program that lowers interest rates by up to 3 percentage points if SMEs with low credit ratings but no delinquencies extend their unsecured loans and the interest rate exceeds 7% per annum, automatically repaying the loan principal with the interest reduction amount. Additionally, each bank will implement support measures to reduce high-interest burdens by lowering interest rates by up to 2-3 percentage points.

Furthermore, when SMEs apply for new loans or refinance with fixed interest rates, the banks will offer preferential rates (up to 1 percentage point reduction) to the level of variable interest rates and execute the loans. They will also provide customers with an interest rate conversion option, allowing adjustment between fixed and variable rates depending on interest rate fluctuations. Along with this, each bank plans to implement broad support measures such as refinancing variable-rate loans to fixed-rate loans at current interest rate levels upon SME requests.

To support the recovery of SMEs in delinquency, about 40 billion KRW will be provided. The banking sector plans to implement support measures to reduce the interest rates on delinquent loans by up to 1-3% for one year to ease the debt burden of delinquent SMEs.

Meanwhile, the banking sector will collaborate with government agencies such as the Ministry of Trade, Industry and Energy and the Ministry of SMEs and Startups to assist SMEs in business restructuring and recovery. The banking sector plans to recommend more than 100 companies annually to the business restructuring program promoted by the Ministry of Trade, Industry and Energy to encourage proactive corporate restructuring and innovation activities. It will also help shorten linkage periods and expand the support target companies to include workout companies in programs promoted by the Ministry of SMEs and Startups and the Korea SMEs and Startups Agency for SME revitalization, enabling more than 500 companies annually to benefit.

The Korea Federation of Banks stated, "The banking sector will refrain from loan collection as much as possible unless there are special reasons such as delinquency and will maintain new fund supply at levels similar to previous years to support SMEs," adding, "We will continue to benchmark effective cases among individual banks' SME support measures to provide practical help to more companies."