The Korea Credit Guarantee Fund has yet to repay 200 billion won borrowed from the general guarantee account to cover losses from COVID-19 small business guarantees. The net assets of the guarantee account have improved to 2.947 trillion won, but the timing of repayment is still under discussion with relevant agencies.
According to the National Assembly and financial sector on September 14, the small business guarantee program was introduced to quickly provide funds to small businesses that experienced a sharp decline in sales due to the pandemic. To expedite financial support, the program simplified the review process and applied a high guarantee ratio. However, as principal repayments began, the burden of defaults and subrogation quickly escalated.
As of 2024, the default rate for small business guarantees stands at 16.7%, more than four times that of general guarantees at 3.6%. The subrogation rate is also at 19.7%, significantly higher than the 3.2% for general guarantees. The National Assembly pointed out that this large-scale default and subrogation have led to the erosion of net assets in the guarantee account and a shortage of cash resources.
To address the immediate crisis, the Credit Guarantee Fund utilized resources from other accounts. It borrowed 200 billion won from the general guarantee account to cover the shortfall in subrogation resources for the small business guarantee account. The general guarantee account is used for credit guarantees for general small and medium-sized enterprises.
As a result, the net assets of the small business guarantee account have improved to 2.947 trillion won, indicating it is no longer in a state of erosion. However, the 200 billion won borrowed from the general guarantee account has not yet been repaid, and the Credit Guarantee Fund is negotiating the repayment timeline with relevant agencies.
The National Assembly has expressed concern that if the general guarantee resources are used for an extended period to cover losses in the small business guarantee account, it could reduce the capacity to provide guarantees to general small and medium-sized enterprises. The Credit Guarantee Fund also utilized an estimated balance of about 200 billion won from the low-interest refinancing guarantee account for small businesses in 2025 as resources for the small business guarantee account.
While the small business guarantee account has recovered from asset erosion, the burden of recovering subrogation claims remains. The scale of subrogation that has already occurred is significant, and it takes time to recover claims and secure resources again. As of August this year, the recovery rate for claims under the general credit guarantee was only 2.9%. The average time taken to recover claims after subrogation is 8 years and 5 months, with 11,890 claims, amounting to 1.345 trillion won, remaining unrecovered for over 10 years.
In this context, the government and financial sector are significantly increasing new policy financing for small businesses this year. The Industrial Bank of Korea and the Credit Guarantee Fund plan to provide 35.3 trillion won to small businesses and others this year. Funding for small businesses, including bank guarantee agreements, is also being pursued on a large scale.
A political source stated, “It is necessary to establish principles on how to address the losses incurred from past COVID-19 guarantees and to clarify plans for normalizing accounts and sharing resources to prevent the resource shortages of specific guarantee accounts from burdening others.”
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.