The South Korean government plans to resolve 2.2 trillion won in non-performing loans held by regional credit guarantee foundations by 2030 and introduce a 2 trillion won regional specialized guarantee program to support the recovery of small businesses.
On June 19, during an emergency economic meeting chaired by Deputy Prime Minister for Economic Affairs Ku Yun-cheol, the government announced a joint plan titled "Establishing a Sustainable Guarantee Support System" involving multiple ministries.
The plan includes measures to address the 2.2 trillion won in non-recoverable bad debts held by regional credit guarantee foundations through methods such as debt write-offs, relaxed write-off criteria, and simplified approval processes.
Support for small businesses that have completed debt restructuring will be strengthened. New guarantees will be allowed for companies that have had their public information registration lifted, and early identification of small businesses showing signs of crisis will be prioritized to connect them with necessary policies. A new special guarantee program worth 170 billion won will be introduced for small businesses in credit-weak and population-declining areas.
Additionally, regional credit guarantee foundations will collaborate with local governments to solicit excellent guarantees and establish special guarantees that favor re-guarantee conditions, aiming to supply approximately 2 trillion won by 2030. A new "Commercial District Growth Support Special Guarantee" will also be introduced to expand support for small businesses from an individual focus to the entire commercial area.
The government will also accelerate efforts to enhance accountability in the guarantee system and stabilize re-guarantees. Full guarantees, which currently operate at a 100% guarantee rate, will be generally prohibited, and regulations will be improved to allow regional credit guarantee foundations to provide guarantees without re-guarantees if they secure separate funding. The current re-guarantee ratio, which is over 50%, will be lowered to 30% to improve the soundness of the re-guarantee system.
The regional credit guarantee system is a key policy financing tool utilized by approximately 1.3 million small business owners, or about 17% of the sector. However, the surge in the guarantee rate due to the COVID-19 pandemic and prolonged high interest rates has threatened the sustainability of the re-guarantee system. The guarantee rate rose from 1.01% in January 2021 to 3.87% in 2023 and 5.66% in 2024, with a recorded rate of 5.07% last year.
Through these measures, the government aims to stabilize the guarantee rate to around 3.2% by the end of 2030 and increase the share of guarantee supply from regional credit guarantee foundations outside the capital area to about 70%. To achieve this, the government plans to swiftly implement improvement measures starting in the second half of this year and prepare legislative amendments by the end of the year.
A government official stated, "We will solidify the stable operational foundation of the regional credit guarantee system and enhance appropriate financial support tailored to the guarantee needs of small businesses."
* This article has been translated by AI.
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