The National Assembly passed the supplementary budget on May 29, 2022 which includes KRW1.7 trillion worth of financial support programs intended to help the self-employed business owners and small merchants experiencing difficulties due to COVID-19 and the vulnerable groups such as young adults and lower income groups.
The financial support programs to help improve people’s living conditions consist of six main tasks worth about KRW1.7 trillion in total in the supplementary budget.
- (a) KRW600 billion (plus KRW500 billion in in-kind contribution) in debt adjustment, (b) KRW680 billion in low interest rate transfer loans and (c) KRW220 billion in targeted support funds to help with the recovery of the self-employed business owners and small merchants and improve their competitiveness
- (d) KRW15 billion in expanded supply of loans for young adults with low incomes and (e) KRW48 billion in special guarantees for those with lowest credit scores to help improve the access to financial services for vulnerable groups such as lower income households and young adults
- (f) KRW109 billion in government-sponsored transfer loans to help ease the high interest payment burdens of non-speculative homeowners and improve the overall structure of household loans
Key Details of Financial Support Programs to Help People’s Livelihood
I. Debt Adjustment Program for Small Merchants and the Self-employed
a) Program Overview
(Program Purpose) To support normal business operation and restart efforts of small merchants and self-employed business owners who have been experiencing difficulties in making loan payments due to losses accrued from the COVID-19.
- Provide preemptive support to prevent deterioration in business foundation via sale of overdue debts or collaterals in the case that the level of business recovery is not sufficient for loan payment burdens.
- Assist restart efforts of borrowers who have turned insolvent due to difficulties in making payments for abruptly increased debt.
(Program Mechanism) Provide payment schedule adjustment and debt reduction by setting up a new fund (tentatively called “restart fund for small merchants and self-employed business owners”) to purchase debts.
(Program Size) Up to KRW30 trillion (which amounts to about 5% of total loans issued to the self-employed business owners and small merchants who are qualified for the program)
(Implementation Schedule) It will be available from October 2022 when the current loan maturity extension and payment deferment program expires. Applications for debt adjustment will be accepted and purchase of debts will take place for three years until September 2025.
(Eligibility) Borrowers that are either an individual business owner or a corporate entity categorized as a small merchant that have suffered losses from the COVID-19 pandemic and either have non-performing loans (for 90 days or longer) or are at risk of accruing bad debt.
(Program Details) Adjustment of payment schedules and interest rate reduction are provided to all borrowers while additional support of a principal reduction is provided for credit liabilities of insolvent borrowers with long-term non-performing loans.
- (Suspension of Debt collection) Suspend accumulation of overdue payments and debt collection activities by financial companies immediately (next day) when borrower applies for debt adjustment.
- (Adjustment of Payment Schedule) Adjust the payment schedule and conditions by granting a sufficient deferment period (e.g. one year) and allowing a shift to a long-term installment payment plan (e.g. over ten years).
- (Interest Rate Reduction) Adjust interest rates to help ease payment burdens resulting from high interest rates (application of differential interest rates based on the payment period to be considered).
- (Principal Reduction) Provide a drastic reduction in principal (e.g. 60% to 90%) for credit liabilities held by insolvent borrowers who have long-term non-performing loans.
c) Expected Cost: KRW600 billion (plus KRW500 billion in in-kind contribution) in 2022 (an addition of KRW2.5 trillion to be considered after 2023)
Provide fiscal investment of KRW600 billion (plus KRW500 billion in in-kind contribution) through the Korea Asset Management Corporation (KAMCO) which manages debt adjustment funds and consider making additional fiscal investment after 2023 for total investment of KRW3.6 trillion.
II. Transfer Loans with Low Interest Rates and Targeted Support Funds
a) Program Overview
(Program Purpose) Provide targeted financial support programs for small merchants and self-employed business owners to (a) ease the burden of making payments on high interest rate loans and (b) help with their recovery efforts and business competitiveness.
(Implementation Schedule) Program will be available as it gets ready for operation in the second half of this year.
(Low Interest Rate Transfer Loan) Provide transfer loans with low interest rates for self-employed business owners who have high interest rate loans.
- (Eligible Borrower) Individual business owners or small businesses and small merchants that are classified as corporate entities who have suffered losses from the COVID-19.
- (Eligible Loans) Business loans held by eligible borrowers who have been making payments on loans faithfully
- (Program Size) About KRW8.5 trillion
- (Maximum Loan) Up to KRW30 million (tentative)
- (Interest Rate) Up to 7% (tentative) of interest rate offered on transfer loans
- (Implementation Schedule) It will be available from October 2022 when the current loan maturity extension and payment deferment program expires.
(Targeted Support Funds) Supply fiscal funds worth KRW41 trillion for two years to help with the recovery efforts and improve business competitiveness.
- (Fiscal Support) Supply KRW3.25 trillion in special guarantees to small merchants hit by COVID-19 to prepare for the post-pandemic business environment.
- (Utilizing Own Finances) Supply funds for operating costs, facilities or equipments and restart efforts of small merchants and self-employed business owners by utilizing government-sponsored financial institutions’ own financial resources.
- (Implementation Schedule) Program will be available as it gets ready for operation from the second half of this year depending on budgetary situation.
c) Expected Cost: KRW900 billion
- Support KRW680 billion for providing guarantees on transfer loans worth KRW8.5 trillion for small merchants and self-employed business owners that have been hit by the COVID-19.
- Support KRW220 billion for providing special guarantees worth KRW3.25 trillion in preparation for the post-COVID-19 era.
III. Bolstering Support for Young Adults with Low Income Background
a) Program Overview
(Program Purpose) To help ease financial difficulties of young adults such as college students and jobseekers that have low access to financial services due to their thin credit background by offering them a fair opportunity for accessing lending service.
(Program Method) Expand the supply of the Sunshine Youth Loan product, a low interest rate microloan service which had been in place for young adults with low incomes.
(Implementation Schedule) Expected to start from June 2022.
b) Program Details
The total amount of lending under the Sunshine Youth Loan program will be expanded by 50 percent in 2022 from KRW200 billion previously to KRW300 billion.
c) Expected Cost
KRW15 billion in fiscal support to be provided to expand the availability of Sunshine Youth Loans by KRW100 billion.
IV. Special Guarantee Product for Borrowers with Lowest Credit Scores
a) Program Background
(Program Purpose) To respond preemptively to the danger of illegal predatory lending as there are concerns about borrowers with lowest credit scores who find it difficult to get access to the traditional financial system amid interest rate hikes falling victims to illegal predatory lending practices.
(Program Method) Prevent potential damages of illegal predatory lending practices by launching a special guarantee product exclusively for people with lowest credit scores.
(Implementation Schedule) Program will be available as it gets ready in the second half of this year.
b) Program Details (tentative)
(Eligibility) Individuals with lowest credit scores (in the lowest 10 percentile) whose annual income is KRW45 million or below and who cannot make use of the other existing microfinance products
(Maximum Loan) Up to KRW10 million
(Payment Method) 3-year or 5-year term available for installment payments on both principal and interests with an up to one year deferment period.
(Guarantee Ratio) 100% guaranteed by the Korea Inclusive Finance Agency
(Interest Rate) Default rate of 15.9% with a reduction offered every year according to the total period of the loan
(Program Size) About KRW240 billion
c) Expected Cost: Support KRW48 billion for guarantees in providing KRW240 billion in guaranteed microloans to those with lowest credit scores.
V. Government-sponsored Transfer Loans
a) Program Background
(Program Purpose) To help alleviate the principal and interest payment burden of borrowers that have mortgage loans with variable interest rates and to remove the danger of interest rate hikes in the future.
(Program Method) Convert current mortgage loans with variable interest rates to long-term fixed interest rate mortgage loans through the securitization of mortgage-backed securities held by the Korea Housing Finance Corporation and provide the benefit of additional interest rate reductions.
(Implementation Schedule) Program will be available when the system gets ready in the second half of this year.
b) Eligibility and Conditions
(Eligibility) Mortgage-backed loans with variable interest rates from the banking and nonbanking sectors.
(Home Price) Market price of up to KRW400 million → Selection of eligible applicants to be made from low-priced homes first
(Income) Up to KRW70 million a year for married couple (tentative)
(Maximum Loan) Up to KRW250 million (tentative)
(Interest Rate) Fixed interest rate of up to 30bp lower than the interest rate of the government-sponsored mortgage loan at the time of loan issuance.
c) Expected Cost: KRW109 billion for 2022
KRW109 billion to be injected to the Korea Housing Finance Corporation to ensure a stable management of its finances following additional issuance of mortgage-backed securities at large scale.