Heads of five major banking groups here on Tuesday agreed to extend their joint loan deferment program for local businesses hit by the COVID-19 pandemic for another six months at an exclusive meeting with Financial Services Commission Chairman Eun Sung-soo.

“The chiefs of the banking groups agreed to extend the program for another six months,” Eun told the press following a roundtable meeting held with the group executives at the Korea Federation of Banks headquarters in central Seoul.

Hana Financial Group Chairman Kim Jung-tai, Woori Financial Group Chairman Sohn Tae-seung, Shinhan Financial Group Chairman Cho Yong-byoung, NH NongHyup Financial Group Chairman Son Byung-hwan and KB Financial Group Chairman Yoon Jong-kyoo participated in the meeting.

Tuesday’s decision marks the third time the government has requested the banking groups and its flagship lenders to extend loan maturity or delay interest payments to aid struggling small businesses and the self-employed.

The program – launched in February -- was initially slated to end in September last year, but the due date was delayed to March 31 on the government’s second delay request. The program is currently scheduled to end this September. 

While the extension is expected draw a positive reaction from borrowers, critics have raised concerns that it could propel the nation’s loan default rate and pose risks to the banks’ fiscal soundness.

On the matter, Eun told reporters that there is currently no choice but to “shoulder the risk.” He added that he believes the banking groups recognize the related risks and is capable of managing it.

However, Eun and the banking group chiefs reached a consensus on drawing up “soft landing measures” to cushion the risks.

The delinquency rate for South Korean banks‘ won-denominated loans fell in December last year on-month, according to the watchdog Financial Supervisory Service data released last week. However, there are concerns that the rate would surge once the deferment program ends.

The rate for bank loans more than 30 days overdue stood at 0.28 percent at the end of December, down 0.07 percentage point on-month. The bank loan delinquency rate was also down 0.09 percentage point, compared with a year earlier.

By Jung Min-kyung (mkjung@heraldcorp.com)