The Financial Services Commission announced current situation regarding the effort to soft-land the loan forbearance measures put in place for SMEs and small merchants that have been hit by COVID-19 on August 29. The maturity extension and payment deferment programs introduced in April 2020 in the wake of the COVID-19 pandemic have been extended for six months each time until now, and the loan forbearance programs are currently operating under the 5th extension plan announced in September 2022.
Key details of the support measures under the 5th extension plan are as follows. First, borrowers on the maturity extension program can continue to get support in accordance with their current loan maturity structure (for six months or one year) until September 2025 without worrying about whether they will still be eligible for support. Second, borrowers on the payment deferment program can get support until September 2023, and they will draw up their debt payment plans in consultation with lending institutions. In accordance with their debt service plans, these borrowers will be able to spread out making payments for both principal and interests for up to 60 months (five years) until September 2028. A maximum one year of grace period can be granted on the amount of deferred interest payments.
The number of borrowers as well as the total amount of outstanding loan balance subject to the maturity extension and payment deferment programs has been declining steadily. At the end of September 2022, there were about 430,000 borrowers with some KRW100 trillion in loan balance on the programs, but the numbers declined to 390,000 borrowers with KRW85 trillion by the end of March 2023 and KRW350,000 borrowers with KRW76 trillion by the end of June 2023.
Compared to September 2022, by June 2023, there were about 80,000 less borrowers using the programs with a drop of about KRW24 trillion in the amount of loan balance, showing a drop of 20 percent and 24 percent, respectively.
About KRW1.6 trillion from the amount declined (KRW24 trillion) went into debt adjustment. Debt adjustment took place mostly offered by financial institutions (KRW1.55 trillion, 98 percent). About one percent of the amount in debt adjustment (KRW15.2 billion) was found to be supported by New Start Fund.
About 98.1 percent (10,902 out of 11,111) of borrowers were found to have already drawn up their debt service plans. In the banking sector, the vast majority of borrowers (99.6 percent or 10,155 out of 10,194) completed drawing up their debt service plans. For some 200 borrowers who have yet to draw up payment plans, authorities will work to ensure a quick consultation between the borrower and the lending institution.
As of the end of June 2023, the balance of loan under the maturity extension program was KRW71.0 trillion, or about 93 percent of KRW76.2 trillion, which is the total amount of loan balance on the maturity extension and payment deferment programs. Support for maturity extension will be made available until September 2025 and interest payments on these loans are being made on schedule.
The balance of loan under the principal deferment program was KRW4.1 trillion, or about 5.5 percent of KRW76.2 trillion. These can be paid back over up to 60 months and most banks are offering an extension of principal deferment on their own, or providing support to reduce the burden of principal payment at an early stage.
The balance of loan under the interest deferment program was KRW1.1 trillion, or about 1.5 percent of KRW76.2 trillion. Some 800 borrowers were using this program who face a relatively higher level of default risk. However, when deemed necessary, these borrowers can be supported by debt adjustment programs offered by financial institutions or through New Start Fund.
In close coordination with the Financial Supervisory Service and financial industry groups, the FSC is making continuous effort for soft-landing of the loan forbearance programs by carrying out individual borrower-level consultations for those using the payment deferment program and helping to bolster their debt service plans, while working to make sure that borrowers are aware of the availability of relevant support programs offered by individual financial institutions. For some 800 borrowers currently on the interest deferment program, the authorities will more attentively carry out one-on-one management.
* Please refer to the attached file for details.