Debts are beginning to sour in South Korea as more and more self-employed and small businesses fail to meet obligations under protracted Covid-19 crisis.
The country’s six major banks – KB Kookmin, Shihan, Woori, Hana, NH Nonghyup, and Industrial Bank of Korea – reported a combined 3.4 trillion won ($3.1 billion) worth in contingent debts that had been deferred at the request of businesses who failed to meet interest obligations as of Dec. 18. Of them, 30 to 50 percent could default.
According to data by the Financial Services Commission and local banks, special loans handed out to small businesses under Covid-19 woes totaled 261.1 trillion won from Feb. 2 to Dec. 4, adding 10.2 trillion over the last two weeks.
Bad debt is expected to build up amid little sign of easing in Covid-19 crisis.
Local banks have been bumping up bad debt reserves, but firearms are drying out as even state lenders are grappling with increasing losses.
State lenders have been responsible for 133.5 trillion won or half of Covid-19 financial relief program that the government launched this year to help out struggling businesses. The Korea Credit Guarantee Fund that has provided 40 trillion won worth virus relief supports projects 4.2 percent of liabilities out of total outstanding guarantees to go bad next year, up 1.4 percentage points from this year. It also raised the subrogation rate by 1.2 points to 3.6 percent.
By Moon Il-ho, Kim Yoo-shin, and Cho Jeehyun
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