The COVID-19 pandemic has had significant impact on the country’s social fabric, economic activities and financial markets. Markets plunged amid fears over health crisis and businesses of all sizes faced liquidity shortage. In response to this unprecedented crisis situation, the FSC has rolled out a series of emergency financial support packages to help households and businesses weather the downfall and stabilize financial markets. Below is a summary of key policy measures introduced by the FSC in response to the COVID-19 pandemic.
‘KRW100 TRILLION & PLUS’ FINANCIAL SUPPORT PACKAGE
The government held its 1st Emergency Economic Council Meeting presided by President Moon Jae-in on March 19. At the meeting, a KRW50 trillion financial support package was introduced to provide financial support for small merchants and SMEs affected by COVID-19 and to help stabilize financial markets. Serving as a comprehensive financial support package for the crisis situation, the government expanded the size of the financial support package to KRW100 trillion & plus and also announced support measures for large companies at the 2nd Emergency Economic Council Meeting on March 24. The KRW100 trillion & plus package included the financing support through policy banks in the amount of KRW58.3 trillion and KRW41.8 trillion funds to help restore stability in the country’s corporate bond market, stock market and short-term money markets.
- FINANCIAL SUPPORT FOR BUSINESSES (KRW58.3 TRILLION)
- Provide low-interest rate loans and government guarantees (KRW29.2 trillion for small-scale businesses and SMEs and KRW29.1 for larger companies)
- BOND MARKET STABILIZATION FUND (KRW10 TRILLION + KRW10 TRILLION)
- a) Establish a KRW10 trillion bond market stabilization fund at first and expand the fund by additional KRW10 trillion thereafter in order to prevent further spreading of credit crunch in the corporate bond market and the short-term bond market
- b) Start purchasing corporate bonds, commercial paper issued by blue-chip companies and financial bonds in the beginning of April
- SUPPORT FOR CORPORATE BOND ISSUANCE (KRW4.1 TRILLION FINANCING)
- a) KRW2.2 trillion financing support through rapid bond underwriting program by state-backed financial institutions (Korea Development Bank will take over 80 percent of corporate bonds for sale to KODIT, which will then issue primary collateralized bond obligations)
- b) KRW1.9 trillion investment grade conversion issue of corporate bonds will be purchased by Korea Development Bank
- SUPPORT FOR SHORT-TERM MONEY MARKETS (KRW7 TRILLION)
- a) KRW5 trillion in liquidity for securities companies (KRW2.5 trillion for stock finance loans and KRW2.5 trillion through repo market financing by the Bank of Korea)
- b) KRW2 trillion in refinancing support from Korea Development Bank and KODIT for corporate commercial paper and electronic short-term bonds
- STOCK MARKET STABILIZATION FUND (KRW10.7 TRILLION)
- The five major financial holding companies, 18 leading financial companies and other relevant institutions including the Korea Exchange will participate in creasing a KRW10.7 trillion stock market stabilization fund. The initial capital call will be for approximately KRW3 trillion and the fund will begin investing in KOSPI 200 indexes in April.
EXPANDING FINANCIAL SAFETY NETS FOR VULNERABLE DEBTORS
Since the beginning, the Moon Jae-in administration has been pursuing financial inclusion, providing new opportunities to the economically marginalized and creating a virtual cycle between inclusive finance and economic growth. As part of these efforts, the government expanded the provision of micro-loans, while offering a debt restructuring scheme to provide assistance in each stage of debt delinquency—from a possibility of late payment to actual debt default.
In the wake of the COVID-19 pandemic, individuals face growing risks of debt overdues due to unpaid leaves and loss of work opportunities. To address this problem, the government announced measures to strengthen support for vulnerable debtors at the 4th Emergency Economic Council Meeting held on April 8.
- PRE-WORKOUT PROGRAMS OFFERED BY INDIVIDUAL FINANCIAL INSTITUTIONS
- A six- to twelve-month deferment of principal payment will be offered by all financial institutions until the end of this year for vulnerable debtors without multiple debts.
- DEBT ADJUSTMENT PROGRAMS OFFERED BY 5,800 FINANCIAL INSTITUTIONS
- Up to one year of deferment of principal payment will be provided by the Credit Counseling & Recovery Service for at-risk debtors with multiple debts. The CCRS’s debt adjustment program will be offered by about 5,800 financial institutions and loan companies in agreement with the CCRS until the end of this year.
- SUPPORT FOR LONG-TERM DEBTORS
- A newly established KRW2 trillion fund at the Korea Asset Management Corporation will be used to buy long-term personal debts to help alleviate long-term debt burdens of delinquent debtors and protect them from the possibility of being exposed to excessive debt collection attempts
TEMPORARY EASING OF FINANCIAL REGULATIONS
The FSC introduced a set of temporary deregulatory measures on the capital adequacy, liquidity and asset quality requirements of financial institutions to help boost their funding capacity amid the COVID-19 pandemic. It is estimated that the below deregulatory measures will enhance financial institution’s funding capacity by KRW206 trillion to KRW394 trillion.
- REGULATIONS ON CAPITAL ADEQUACY
- a) Lowering risk weights for the amount of contributions made by banks, securities companies and insurance companies to the stock market stabilization fund
- b) Early adoption of Basel III credit risk framework for banks, which will increase banks’ average BIS ratio by 0.8 percentage point
- c) Excluding small-sized regional banks from the list of domestic systemically important banks (D-SIBs) and exempting them from the 1 percentage point additional capital buffer rule
- d) Postponing the official introduction of Basel III large exposures framework until after 2021
- REGULATIONS ON LIQUIDITY
- a) Lowering the foreign currency liquidity coverage ratio from 80 percent to 70 percent and the total LCR from 100 percent to 85 percent by the end of September
- b) Temporary easing of sanctions rule on loan-to-deposit (LTD) ratio requirement for banks within a 5 percentage point range until the end of June 2021
- c) Temporary easing of penalties for violation of the net stable funding ratio rule for the Korea Development Bank within a 10 percentage point range until the end of June 2021
- d) Ensuring that there are no obstacles for insurance companies in carrying out repurchase agreements (repos) for the purpose of raising funds to contribute the market stabilization facilities
- ASSET QUALITY STANDARDS
- a) Allowing all financial institutions to apply the existing asset quality standards without the need to raise additional capital reserves and to consider accrued interest as interest revenue for accounting purposes
- b) Permitting commercial loans to closed businesses to be considered as above ‘risky’ assets provided that the owner of the business demonstrates a sufficient capacity to meet principal and interest payments in the future
- EXEMPTION FROM SANCTIONS & OTHER DEREGULATORY MEASURES
- a) Implementing revised rules on exemption from sanctions for misconduct in financial services
- b) Temporary lifting of penalties or administrative sanctions for failing to meet disclosure or business report deadlines
- c) Increasing the maximum leverage ratio for credit finance companies from the current six times to eight times the total assets minus on-lending loans over equity capital
- d) Allowing an untact recording of telephone conversations in insurance telemarketing rules in place of the face-to-face explanation and handwritten signature requirements for insurance agents when the COVID-19 alert level is at ‘serious’ or ‘warning’
SUPPORT FOR KEY INDUSTRIES & BUSINESSES
On April 22, the government announced stronger measures to help address companies’ liquidity shortages and alleviate concerns about job losses in the key industries. Considering the effects on the real economy and employment, the measures have been drawn up to reflect the specific needs of the industries and businesses. For companies with temporary liquidity problems, the government has expanded the size of the support package and the eligibility base. For the key industries, the support package will be provided on the condition that they maintain employment and that profits generated will be shared when business is normalized.
- KRW40 TRILLION & PLUS STABILIZATION FUND FOR KEY INDUSTRIES
- a) A KRW40 trillion & plus new stabilization fund will be established to support key industries, including airline, shipping, shipbuilding, automobile, general machinery, electric power and telecommunication industries
- b) Businesses will be required to maintain employment and be subject to limitations in executive compensation, dividend payouts and share buybacks.
- c) It will be provided through loans, payment guarantees and investments according to specific industry and business needs.
- d) Due to the contingent nature of the crisis, the stabilization fund for key industries will be operated on a temporary basis for five years.
- KRW35 TRILLION ADDED TO KRW100 TRILLION & PLUS PACKAGE FOR BUSINESSES
- a) Specific plans for KRW10 trillion more in emergency financing support to small-scale businesses will be prepared shortly to prevent bottleneck effects.
- b) KRW5 trillion more in P-CBOs will be issued this year for a total of KRW6.7 trillion.
- c) A special purpose vehicle (SPV) will be set up to purchase corporate bonds, commercial paper and short-term debts including junk-rated bonds in the amount of KRW20 trillion. State-backed financial institutions will take part and the Bank of Korea will provide support with liquidity.
Last updated: Apr. 6, 2020