|Financial Services Commission Chairman Koh Seung-beom, right, speaks during a government-ruling party meeting at the National Assembly in Seoul, Wednesday. Yonhap|
By Lee Min-hyung
The Financial Services Commission (FSC) has virtually rejected a request from commercial banks and pushed ahead with the extension of a special COVID-19 financial program that waives principal and interest obligations for small business owners and the self-employed who took out loans.
Under the program, small business owners and the self-employed who have been directly affected by the prolonged pandemic shock have been able to receive financial benefits by receiving loans from banks without paying any principal and interest until the end of September.
Banks have so far argued that beneficiaries of the program should at least pay interest after the deadline to help lenders identify those at risk of insolvency. The financial industry underscored the need to do so in a preemptive manner, as this is an effective step for them to manage possible post-pandemic risks caused by so-called "zombie firms" ― firms that cannot generate enough revenue to pay off a debt beyond the minimum service of a loan.
But the financial authority decided Wednesday to extend the program for another six months to the end of March 2022 without accepting the request from the bank industry.
The FSC introduced the program for the first time in April 2020 amid fears of mass closures of small businesses nationwide due to toughened social distancing.
This is the third time for the authority to extend the loan benefit. Small business owners and the self-employed here will have to start paying back a total of 12 trillion won ($10.22 billion) in principal after the end of the program. They also should pay 200 billion won in interest as of the end of July, according to data from the FSC.
Bank industry sources have voiced concerns over the recent decision by the watchdog.
"Given the economy remains vulnerable to the fourth wave of the pandemic, the decision appeared to be inevitable," an official from a major lender here said. "But it would have been better for the authority to have accepted our request to make them pay interest, as this helps both banks and the loan beneficiaries reduce post-pandemic risks."
Another official from the industry also underscored the need for authorities to introduce additional measures to reduce benefits for zombie firms at high risk of collapse after the pandemic.
"If a certain firm cannot pay for interest, it will be exposed to a bigger financial risk after the financial support program ends," the official said. "It is proper for banks to monitor such inherent risks before providing or extending loans to them, rather than providing support unconditionally."
FSC Chairman Koh Seung-beom also pledged to take additional measures while announcing its decision to extend the program.
"We have sympathized with the financial industry over the need to extend the program, and both sides also agreed to take complementary steps for a soft landing of the policy," Koh said.