Summary
Even three years after the end of COVID-19 quarantine measures, applications to extend maturities or defer repayment on loans taken out during the pandemic topped 3,000 last month. This signals that cash-flow recovery among the self-employed remains sluggish, and it is a variable that will affect the asset soundness of the banks and guarantee agencies holding these loans.
How It Unfolded
In responding to COVID-19, the government rolled out large-scale policy financing along with maturity-extension and interest-deferral measures for small business owners. Even after quarantine measures ended, a considerable number of borrowers have failed to recover sales to pre-pandemic levels, and cases continue in which they cannot make normal principal-and-interest payments and instead push their maturities back yet again.
The fact that extension applications exceeded 3,000 in a single month means that the structure of stacking up debt over time is hard to unwind in the short term. As more borrowers see no reduction in principal while only interest accumulates during the deferral period, the risk grows that the debt will, beyond a certain point, convert into bad debt all at once.
Structural Background
Underlying the delayed recovery of the self-employed is a cost structure of weak domestic demand, the interest burden from high rates, and rising rents, labor costs, and raw-material costs. When fixed costs climb while sales stagnate, repayment capacity shrinks. Policy-finance maturity extensions are a device for spreading out the shock, but unless underlying profitability improves, they merely postpone bad debt rather than eliminate it.
Stock and Sector Ripple Effects
- IBK (Industrial Bank of Korea): As the state-run bank with the highest share of loans to SMEs and small business owners, its provisioning burden grows directly when delinquency rates among the self-employed rise.
- Shinhan Financial Group, KB Financial, Hana Financial Group, Woori Financial Group: With large exposure to sole-proprietor loans, their credit costs and net profit volatility could widen depending on how fast bad debt spreads.
- Secondary financial sector such as card and capital firms: Because they are where borrowers turned away by banks tend to congregate, credit risk is reflected relatively more sensitively.
- Local and regionally based financial firms: With heavy dependence on specific commercial districts, a slowdown in the regional economy could concentrate the hit to asset soundness.
Bullish vs. Bearish Scenarios
On the bearish side, once accumulated maturity extensions pass a tipping point, delinquency rates and the substandard-and-below loan ratio rise in tandem, increasing banks' loan-loss provisions and eating into earnings. The fact that bad debt may surface all at once as policy support is phased out is also a burden.
On the bullish side, conversely, domestic banks have already built up high capital ratios and pre-emptive provisions, and small-business loans include a portion backed by guarantee agencies, leaving some capacity to absorb losses. There is also room for repayment capacity to improve gradually if a cut in the benchmark interest rate eases the interest burden and domestic demand revives.
Investor Action Points
- At quarterly earnings releases, check the trends in each bank's delinquency rate and substandard-and-below loan ratio for sole-proprietor and SME loans.
- Gauge loss-absorption capacity through changes in the loan-loss provisioning ratio and the coverage ratio.
- Track the financial authorities' soft-landing schedule for maturity extensions and repayment deferrals, as well as announcements of guarantee-support policies.
- Read the path of the benchmark interest rate and domestic-demand indicators (retail sales, services-sector output) as leading signals of a recovery in the self-employed's repayment capacity.
IBK in Real-Time Data
IBK's most recent closing price is 22,450 won (0.00% vs. the previous day), and its signal light—combining foreign and institutional investor supply-demand (order flow) with news and momentum—is 🟡 Neutral / Wait-and-See. With positive and negative signals mixed, it is a zone to watch.
※ Price and foreign/institutional supply-demand (order flow) data are provided by Korea Investment & Securities (KIS) and are as of the time of publication.
This article is content automatically summarized and analyzed based on the original news report. View original (Yonhap News)
