South Korean banks apply caution amid relief moves

March 03, 2020 | 11:00
South Korean lenders are continuing to play the waiting game in regards to measures to combat damage caused by the coronavirus outbreak, though domestic banks and investors have been placing growing bets on rate cuts or tolerance to loans.
south korean banks apply caution amid relief moves
South Korea’s Shinhan Bank is adopting a “wait-and-see” stance in relief solutions. Photo Le Toan

Last week, the Bank of Korea (BOK) kept its interest rates unchanged, dashing expectations for a cut even as the rapid spread of COVID-19 in Asia’s fourth-largest economy threatened to derail growth. The country’s economy grew 2 per cent last year, hitting a record low in more than a decade despite two previous rate cuts and a sharp increase in the nation’s budget, according to CNBC.

BOK governor Lee Ju-Yeol said the central bank would provide loan support for virus hit companies rather than a wider-reaching lending rate move, emphasising it was still too early to gauge the overall economic impact of the outbreak.

South Korean President Moon Jae-In quoted by Yonhap News as saying, “A supplementary budget should be drawn up to cushion the virus’ impact on the economy.”

Shares of financial firms also tumbled, with Shinhan Financial Group losing 2.05 per cent and KB Financial decreasing 2.17 per cent as of February 26, also according to Yonhap News.

Some lenders confirmed they would provide additional relief to businesses, but have not yet made it clear where they would take actions.

Kookmin Bank announced a recent support package, stating that it would offer loans up to ₩500 million ($412,000) for companies in need of emergency funding, especially small- and medium-sized enterprises (SMEs) in the tourism and services sectors, which are expected to be hit hardest. The lending rate on these loans will be cut as much as one percentage point.

Other institutions such as Shinhan Financial Group announced that all 16 of its business units will offer support as part of the holding group’s “comprehensive measures”. Shinhan Bank, which is also the largest Korean-invested bank in Vietnam, will also be offering loans worth around ₩100 billion ($82 million) to SMEs in countries where it operates, with the exception of Vietnam. Each business will be able to borrow up to ₩500 million through the programme.

The threat of a growth downturn exacerbated by outbreak tension prompted Vietnamese lenders to cut lending rates or introduce relief packages to their clients. Needless to say, the potential for virus-related disruptions that rock supply chains, output, and travel is again putting lenders in a delicate spot.

However, probabilities for rate cuts or relief plans from South Korean banks for businesses in Vietnam are not clear though the country is the top destination attracting funds from South Korea.

As VIR reported previously, South Korea last year placed first in registered foreign direct investment in Vietnam, with $7.92 billion – over one-fifth of the total amount pumped into the country. Electronics, medical devices, aeronautics, and high-tech park infrastructure are just some of the areas South Korean expertise could be penetrating further, both this year and beyond.

South Korean banks in Vietnam, particularly Woori Bank, Industrial Bank of Korea, Nonghyup Bank, and Suhyup Bank, to name a few, are adopting a wait-and-see stance.

Nonghyup Bank’s representative told VIR, “Nonghyup Bank remains cautious on the economy at the moment, but we are awaiting more information regarding the outbreak.”

Daegu Bank, originating from Daegu – the largest cluster of infections in South Korea – has not signalled any supporting plans yet. Approval from the State Bank of Vietnam (SBV) to enter the country was given in December.

Woori Bank and Kookmin Bank are not yet ready to extend any measures for enterprises, with no proposals to help customers, both South Korean and Vietnamese ones, to ride out this difficult time.

Going against the flow, according to the latest information, Shinhan Bank has positively implemented several measures to support clients affected by COVID-19 by reducing lending interest rates and restructuring the debt repayment term, extending the debt repayment period (from January 23 to March 31, 2020) at the request of the customers on a case-by-case basis. Additionally, the bank is granting new loans to applicants who meet the loan conditions and the bank's requirements.

Besides, Shinhan Bank has organised the purchase and consumption of more than 16.5 tonnes of watermelons last week for farmers to empower Vietnamese agriculture.

A few days ago, the SBV drafted a circular on credit institutions and foreign banks in Vietnam to restructure loan repayments and exemption and reduction of lending rates – a move to support cash-squeezed businesses amid the COVID-19 contagion.

Regulators have asked banks to provide extra support, such as extending loans, to entities and individuals that were helping combat the coronavirus outbreak.

“We are going to request banks to exempt, reduce, or delay interest payments for loans as of the date when the government declared an epidemic,” said Nguyen Quoc Hung, director of the SBV’s Credit Department. Both foreign and domestic lenders must report to the SBV as early as March 15 on the restructuring of loans and relief measures, according to Document No.1117/NHNN-TD, dated last week.

By Huong Thanh

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