Removing Obstacles to Support Small Business Owners in the Banking Sector... Regulatory Easing Including Employee Exemption

Comprehensive Promotion of Regulatory Relaxation for Financial Support to Small Business Owners in the Banking Sector
Improvement of Management Performance Evaluation Items and Exclusion of DSR Application
Exception to Bank Management Goals When Converting Closed Business Owners to Household Loans
Incentives for Converting Branches to Consulting Centers
Establishment of a Task Force by the Korea Inclusive Finance Agency to Oversee Support Performance

The financial authorities are promoting regulatory relaxation measures targeting banks to activate up to 700 billion KRW in financial support for small business owners. These measures include granting indemnity to bank employees involved in small business debt restructuring and issuing non-action opinions to exempt soundness regulations related to closed borrowers.

On the 23rd, Financial Services Commission Chairman Kim Byung-hwan and Financial Supervisory Service Governor Lee Bok-hyun held a meeting with Jo Yong-byeong, Chairman of the Korea Federation of Banks, and the heads of 20 member banks. They announced financial support plans for small business owners in the banking sector, such as tailored debt restructuring for borrowers before delinquency, low-interest and long-term installment repayment programs for closed businesses, win-win guarantees and loans, and the introduction of bank consulting programs, along with various regulatory relaxation measures to support these initiatives.

First, indemnity for bank employees will be guaranteed for losses that may occur during the small business debt restructuring process. This is a measure to alleviate the burden on employees for losses that may arise from proactive debt restructuring processes such as long-term installment repayment or interest rate reductions. The Financial Supervisory Service plans to notify this through an official letter around March to April next year, and this was also applied during the maturity extension and repayment deferral measures to support companies affected by COVID-19.

To activate such tailored debt restructuring, the Financial Supervisory Service will also improve the bank management evaluation criteria. Currently, only the overall support performance and interest reduction support performance of personal business loans 119 are reflected in the management evaluation. However, going forward, the 'Bank Inspection Manual' will be revised to reflect the performance of long-term installment repayment refinancing in the evaluation indicators instead of the overall support performance.

Relaxation of Household Loan and Soundness Regulations Related to Closed Borrowers

For closed small business owners, significant relaxation measures have been prepared regarding household loan regulations. When a closed borrower converts an existing business loan into a household loan, they will be excluded from the annual household loan management target for each bank. This is a measure considering the special situation where loans originally executed for business purposes are converted into household loans due to closure.

The Debt Service Ratio (DSR) regulation will also be improved. Currently, if a small business owner closes due to management difficulties and refinances a business loan into a household loan for debt restructuring purposes, DSR exemption applies only when the repayment period is converted to 10 years or more. However, going forward, this condition will be removed for credit and guaranteed loans. For secured loans, the existing condition of 10 years or more will be maintained. This reflects the characteristic that credit and guaranteed loans generally have shorter repayment periods compared to secured loans.

The soundness classification criteria for closed borrowers will also be significantly relaxed. Currently, long-term installment loans and other bank debt restructuring targets among household loans are classified as watch or below standard grades. Under the new plan, borrowers classified as normal before refinancing will continue to be classified as normal after refinancing, and considering that these were previously corporate loans, the upgrade criteria for soundness classification will be relaxed to six months. To this end, measures such as issuing authoritative interpretations or non-action opinions are expected to be implemented around March to April next year.

Support through regional credit guarantee foundations will also be strengthened. For closed borrowers, through revisions to the Ministry of SMEs and Startups guidelines, if the outstanding balance of existing guaranteed loans is 100 million KRW or less, the guarantee period will be extended from the current maximum of 5 years to a maximum of 7 years, and this will be applied temporarily for three years.

Incentives for Closing Branches and Creating Consulting Centers... Seogumwon to Oversee

The consulting support system will also be strengthened. When banks convert existing branches into consulting centers, incentives exempting them from joint branch closure procedures will be provided. Currently, nine banks operate 35 consulting centers, and some banks are considering converting existing branches into consulting centers. However, to minimize inconvenience to financial consumers, supplementary measures such as operating high-function unmanned automated machines (STM, ITM) and deploying guides when necessary will also be prepared.

Additionally, non-financial services to support small business owners and SMEs will be expanded. Banks will be able to provide innovative services such as order payment platforms, regional tourism platforms, food ingredient ordering services, and accounts receivable factoring. To this end, the financial authorities plan to promote institutional improvements such as utilizing the financial sector sandbox and allowing ancillary businesses.

To enhance the overall effectiveness of these financial support measures, the Korea Inclusive Finance Agency will take charge of comprehensive performance management. Currently, the Korea Federation of Banks, the Financial Supervisory Service, and guarantee institutions manage performance individually, but going forward, the Korea Inclusive Finance Agency will form a task force (TF) with related organizations to establish a systematic performance management system.

A financial authority official explained, "These measures provide institutional support to ensure that financial support for small business owners achieves practical effects," adding, "Related regulations will be sequentially revised by the first quarter of next year."