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South Korea's financial regulator on Tuesday called on banks not to withdraw debts from local companies based in North Korea's troubled inter-Korean industrial complex that has stopped operating amid rising inter-Korean tensions.
The Financial Supervisory Service advised local lenders to refrain from recouping maturing debts owed by companies located in the industrial site in the North Korean border city of Kaesong, in a bid to minimize their financial damage, according to its officials.
"The situation came from a political reason. Companies there shouldn't be given any disadvantages because of it," said an FSS official requesting anonymity.
On Monday, workers at the Kaesong complex did not report to work, as the North announced the day before that it would pull out all of its laborers in protest of what they called South Korean provocations, bringing their operations to a complete halt.
Pyongyang has claimed that Seoul was using Kaesong to find a pretext for igniting war.
The FSS asked banks not to raise lending rates for the firms even if their credit ratings are downgraded due to the setbacks stemming from current geopolitical circumstances.
According to FSS data, there are currently 123 companies based in the Kaesong complex, with their amount of bank loans standing at 1.6 trillion won (US$ 1.39 billion).
In line with the regulator's move, major Korean banks have stepped up efforts to help the companies in the Kaesong complex quell financial troubles.
State-run Industrial Bank of Korea decided to provide an emergency loan worth 100 billion won for the companies starting from Tuesday, with each company eligible to apply for 500 million won in an additional loan.
IBK said it will defer the repayment of their debts maturing within this year until next year. The bank has extended loans to 60 companies in Kaesong, according to the bank. Woori Bank, the only South Korean lender that has a branch operating in Kaesong, will soon also provide a similar emergency fund aimed to help the firms exposed to the cash squeeze.
According to the foreign ministry's estimate, local companies in the Kaesong complex are expected to suffer setbacks in their production worth $ 1.28 million per day. The industrial complex posted an annual output of $ 469.5 million in 2012.