The non-performing rate of ‘small business consignment guarantee’ loans issued by the government through the Credit Guarantee Fund since 2020 to support small business owners suffering from the COVID-19 incident was found to have exceeded 10% at the end of June. The ‘subrogation amount’ paid by Shinbo, a public institution, to financial companies on behalf of borrowers due to bad loans is also doubling every year. It is pointed out that loans given out ‘without even questioning’ the borrower’s ability to repay in order to overcome COVID-19 are coming back with large-scale insolvency aftereffects over time.
○ Consignment guarantee failure triples.
According to the ‘(National Assembly) Political Affairs Committee Review Report’ obtained by the Korea Economic Daily through People Power Party lawmaker Yoon Chang-hyun on the 13th, the loan default rate for small business consignment guarantee projects was calculated to be 10.6% as of the end of June. The insolvency rate of this business was only 0.2% as of 2020, but rose to 1.7% in 2021, then to 3.9% last year, and this year, it soared to three times the level at the end of the previous year in just six months.
The small business consignment guarantee project was carried out temporarily from May 2020 to January last year with Shinbo receiving government budget. A total of 7.43 trillion won in loans were made during this period. The small business consignment guarantee loan differs from general guaranteed loans in that Shinbo, the guarantee agency, does not perform the guarantee review, and the 12 banks entrusted with the guarantee review decide whether to guarantee the loan on their behalf.
The bank entrusted with review authority did not review repayment ability as rigorously as Shinbo. Shinbo’s general guarantee not only considers the debt status and amount of equity capital of the business seeking a loan, but also conducts an on-site investigation. On the other hand, small business consignment guarantees are provided after simply checking the borrower’s loan delinquency history and tax delinquency records. Under the justification of providing rapid and large-scale support to small business owners suffering from COVID-19, the guarantee was provided through this simple process. As the warranty review process has been greatly relaxed, the risk of insolvency is inevitably high.
Insolvency is growing at a rapid pace. The ‘subrogation amount’ paid by Shinbo, the guarantor agency, to a financial institution on behalf of a borrower who received a loan through the small business consignment guarantee business did not repay the money먹튀검증, increased by 118.8% from KRW 83.7 billion in 2021 to KRW 183.1 billion last year. Shinbo reports that the amount of subrogation is expected to reach 364.6 billion won this year, nearly doubling from last year.
○Insolvency snowballs with the start of principal repayment
The problem is that there is great concern that the insolvency rate of small business consignment guarantee projects will soar at a faster rate in the future. Loans through small business consignment guarantees were supplied to small business owners with a ‘3-year grace period, 2-year installment repayment’ structure. This means that from May of this year, you will have to start repaying not only the interest but also the loan principal.
The new report also predicted that the cumulative default rate (accumulated bad debt divided by accumulated loan supply) through this project will rise from 5.2% at the end of last year to 14% this year, and is expected to reach 25.6% in 2025.
Some point out that the large-scale insolvency of the small business consignment guarantee business may cause disruption in the general guarantee business for small and medium-sized businesses, which is the main business of Shinbo. However, the financial sector believes that support for small business guarantees will not be a problem as the budget for the small business consignment guarantee business is managed in a separate account from Shinbo’s general guarantee business.
Rep. Yoon Chang-hyeon said, “If the size of subrogation payments increases due to poor review, there is a risk that the guarantee supply capacity of new insurance will decrease and opportunities for future guarantees for small and medium-sized businesses struggling with high interest rates will disappear,” adding, “It is time to innovate the system to prevent the soundness of new insurance from being damaged.” pointed out.