South Korea to restructure pandemic-era debt for small businesses

The South Korean government has announced a plan to support small business owners and self-employed individuals struggling with debt incurred during the COVID-19 pandemic. Following the Bank of Korea's decision to raise the base interest rate to 3.00%, the government aims to mitigate the rising burden on vulnerable borrowers.

The debt restructuring program will target long-term delinquent unsecured loans held by financial institutions and public agencies that have been in arrears since before June 2023. This comes as the outstanding balance of pandemic-era individual business loans remains at approximately 154.7 trillion won.

To encourage responsible borrowing, the government will provide incentives for those who have been diligent in their repayments. These benefits include interest rate reductions, increased credit limits, and interest exemptions. Specific measures include expanding the supply of 'Hope Dream Loans' through the Industrial Bank of Korea and increasing the supply of 'Sunshine Loan' products for low-income earners.

Additionally, public institutions will strengthen debt management. The Export-Import Bank of Korea will conduct the first mass cancellation of long-term unpaid special claims for small and medium-sized enterprises. Detailed implementation plans for the debt adjustment program are expected to be released within the fourth quarter of this year.