South Korea’s Financial Services Commission sets out KRW 4.5 trillion regional lending plan and supplier financing reforms

South Korea’s Financial Services Commission (FSC) set out plans to provide KRW 4.5 trillion in low interest guaranteed loans to regional businesses over three years and reform receivables financing to accelerate supplier payments and reduce exposure to buyers’ defaults. The regional lending initiative follows its January proposal to ease banks’ loan to deposit ratio calculations for business lending outside the Seoul metropolitan area. Under an agreement involving 16 banks and two guarantee institutions, banks will contribute KRW 300 billion over three years to support lending to key small and medium enterprises and midsize businesses outside the Seoul metropolitan area. Local governments will recommend eligible firms and may subsidize interest costs. Funding allocations will vary according to assessments of regional conditions and authorities’ capacity to implement the program. Lending is scheduled to begin in the first quarter of 2027. From January 2027, banks’ recourse against suppliers on loans secured by trade receivables will generally be abolished, including for existing loans as they mature or renew. Exceptions will be limited to suppliers that explicitly request recourse. Refunds of prepaid interest following early repayment will also go to the supplier that paid the interest rather than the buyer. From February 2027, maximum maturities for trade receivables and related financing will fall from 90 to 60 days. Access to financing based on the main buyer’s creditworthiness will also expand for suppliers further down the supply chain. The FSC estimates that the reforms could accelerate collection of approximately KRW 117 trillion in receivables annually, deliver KRW 44.6 billion in annual interest savings and refunds, and relieve suppliers of approximately KRW 26.9 trillion in annual guarantee obligations.