South Korea to Reform Regional Credit Guarantees, Target Lower Default Rate

South Korea is initiating a significant structural reform of its regional credit guarantee system, aiming to bolster its financial soundness. A key objective is the phased abolition of the principle of 100% guarantees for small and medium-sized enterprises (SMEs).

The government, through the Ministry of SMEs and Startups, announced a plan to reduce the default payment ratio to the 3% range by 2030. This move is intended to create a more sustainable guarantee support system, moving away from blanket coverage towards a more risk-managed approach.

The announcement was made on June 19 during an emergency economic inspection task force and economic ministers' meeting, presided over by the Deputy Prime Minister and Minister of Economy and Finance, Koo Yun-cheol. The reform package, jointly prepared by relevant ministries, seeks to ensure the long-term viability of credit guarantees for SMEs.