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Banks may extend loan maturity amid COVID-19 resurgence

Mounting calls for loan repayment extension puts pressure on local lenders


South Korea’s major banks are expected to extend due dates on interest payments and loan installments worth more than 39 trillion won ($32.8 billion won) combined, in line with the government’s efforts to reduce the financial burden affecting coronavirus-battered citizens and businesses.

According to data compiled by the country’s five key lenders -- KB Kookmin, Shinhan, Hana, Woori and NH NongHyup -- the combined amount of deferred interest and installments from early February to Aug. 13 stood at 39.1 trillion won.

The lenders’ financial aid came in line with government programs, such as emergency loan programs and cash payouts, aimed at supporting self-employed people and small and medium-sized enterprises hit hard by the coronavirus pandemic. Under the guidance of the Financial Services Commission, major banks officially implemented the six-month extension, which is scheduled to expire Sept. 30.

As the coronavirus crisis continues, local banks are now under mounting pressure from the financial authority to agree to further extensions of loan repayment schedules. During a meeting with the heads of local financial associations last week, FSC Chairman Eun Sung-soo reportedly requested support for additional extensions.

“(The FSC) and financial associations found common ground on further loan rollovers or delayed interest payments,” Eun told reporters after the meeting. “The FSC will announce a loan moratorium scheme by end-August after hearing more opinions.”

The recent resurgence of COVID-19 also resulted in calls for extra financial support from banks. The country reported 246 more new coronavirus cases Tuesday, bringing the total number to date to 15,761, according to the Korea Centers for Disease Control and Prevention. 

Responding to the authority’s guidance, domestic banks will likely continue the ongoing loan payment extension for at least another six months from the end of September, industry sources said. 

While local banks agreed to extend the due dates, they are voicing concerns over the deferral of interest payments for marginal firms, which could lead to a surge in bad loans.

“By assessing a company’s ability to pay for loan interest, bank officials screen risky borrowing. The government’s demand to postpone interest payments will bar such critical assessment,” said a banking sector official. 

“In addition, after the moratorium ends, delayed loan interest turns out to be a large sum of money, posing threats to local banks’ fiscal soundness.”

By Choi Jae-hee (cjh@heraldcorp.com)
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