South Korea’s financial regulator said Tuesday that it has instructed commercial banks to roll over their loans issued to companies operating at the inter-Korean Gaeseong Industrial Complex.

The Financial Supervisory Service’s regulatory policy came after North Korea suspended operations of the complex by withdrawing most of its workers in the North’s border city between Monday and Tuesday.

“In a bid to minimize losses to South Korean companies operating in Gaeseong, banks will abstain from retrieving their matured loans or offer some cases of rollover,” said an FSS official.

He issued the possibility that firms there could face serious cash flow problems should their subcontractors demand damages, stressing that “the firms should not be undermined financially as the situation has come from geopolitical tension.”

The banking sector has extended loans worth 1.6 trillion won ($1.4 billion) to 123 South Korean firms operating there.

State-funded banks immediately took a cooperative stance in rescuing the firms as well as following the regulatory instruction. They included Woori Bank, the Export-Import Bank of Korea and the Industrial Bank of Korea. The Export-Import Bank of Korea said it was considering expanding management-oriented funds to the 123 firms.

The state-controlled Korea Eximbank has been in charge of administering funds and state insurance products for inter-Korean businesses.

Woori Bank, as the only South Korean bank which has expanded to the North, said it has decided to provide the firms with emergency loans. It also plans to offer the companies preferred interest rates.

The Industrial Bank of Korea decided to offer rescue loans totaling 100 billion won. Each firm can borrow up to 500 million won at discounted rates by about 1 percentage point.

As a threat amid tension, Pyongyang is preventing South Koreans from crossing the border to the Gaeseong Industrial Complex, where the South’s firms hire about 53,000 North Korean workers.

By Kim Yon-se (kys@heraldcorp.com)