Regulators are forced to renew loan exemptions due to stricter social distancing rules
|Tourists at Jeju International Airport on Saturday, two days before Level 4 social distancing rules go into effect in the Greater Seoul area. Yonhap|
Lee Min Hyun
With Korea set to impose its toughest social distancing level over the next two weeks from Monday, financial authorities are faced with a growing dilemma over whether to provide credit breaks to self-employed and small business owners.
Under Level 4 Social Distancing Rules, more than two people cannot gather for outdoor activities after 6:00 pm in and around Seoul. Small business owners, especially those with restaurants, cafes and pubs, will be hit hard by tightening social distancing rules.
The decision came amid renewed fears of new infections, with the country’s daily number of COVID-19 cases exceeding 1,000 for the fifth consecutive day since July 7.
This situation has left the Financial Services Commission and other bodies at a standstill as to their future policy direction. Since pandemic fears began to sweep the economy in March 2020, financial observers have urged banks to delay receiving interest and principal on loans from small business owners until the end of September.
But the timing is likely to be delayed even further if the fourth wave of infections continues to put heavy pressure on the economy. The banking sector estimates that loans offered to self-employed and small and medium enterprises since the pandemic total 200 trillion won ($ 174.1 billion).
However, representatives of the financial sector said it was undesirable for the authorities to continue offering financial incentives to groups affected by the virus in the name of helping them recover from the pandemic shock.
“Even if small business owners are in dire need of financial support during the economic downturn caused by the coronavirus, they must prepare for the worst-case scenario after the pandemic dies down,” an industry official said. “They will face a huge burden if they have to pay all interest and principal in one go after the pandemic is over. We believe that they need to start paying interest on their loans as part of a step towards hedging the risks of possible post-pandemic insolvency. ”