KRW 4.9 trillion in guaranteed non-performing loans older than 15 years to be written off… First public release next March of banks ‘Inclusive Finance Evaluation’ results - 경향신문

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Financial Services Commission Chair Lee Eok-won presides over the ‘7th Inclusive Finance Grand Transition Meeting’ held on the afternoon of the 28th at the Korea Asset Management Corporation Yangjae Tower in Gangnam-gu, Seoul. Provided by the Financial Services Commission

Among non-performing loans that transferred to financial public institutions after individuals and corporations failed to repay loans obtained from financial companies with government guarantees, claims totaling KRW 4.9 trillion that are more than 15 years old will be written off by next year. For people with no ability to repay who have been delinquent for at least five years on debts of KRW 50 million or less, recovery will also be waived. The financial authorities will introduce an ‘Inclusive Finance Evaluation System’ to reduce the financial burden on vulnerable groups and will announce the first evaluation results in March next year.

On the 28th, at the Korea Asset Management Corporation (KAMCO) Yangjae Tower in Gangnam-gu, Seoul, the Financial Services Commission, chaired by Lee Eok-won, held the ‘7th Inclusive Finance Grand Transition Meeting’ and announced ‘Measures to Improve the Management of Non-performing Loans at Financial Public Institutions’.

For guaranteed loans in which financial public institutions provide a portion of the guarantee (up to 80%), when they become delinquent the public institution repays the debt on behalf of the borrower, purchases the claim, and manages it. However, because standards for claim management and the timing of extinctive prescription completion (waiver of recovery) differed by institution, there has been confusion.

The government established a principle that, among guaranteed loans at seven financial public institutions, claims for which 15 years have elapsed since delinquency and a second limitation period has arrived will be written off regardless of the amount in arrears. The total is KRW 4.9 trillion (118,000 cases in total), and the government will complete the write-offs by next year. Claims by individuals and sole proprietors total KRW 2.0 trillion, and corporate claims total KRW 2.9 trillion.

Of this amount, KRW 4.5 trillion that has reached the limitation period will be written off immediately after asset investigations by the first quarter of next year, and KRW 400 billion will be dealt with by the end of next year.

The government also decided to waive recovery for claims of KRW 50 million or less that are more than five years past due and where there is no repayment capacity. This means the creditor will completely forgo the procedures and rights to seek repayment. Currently, claims of KRW 50 million or less that are at least seven years in arrears are purchased by the New Start Fund to support debtors, but support has been expanded to cover non-performing loans that are ‘5 years or more~7 years or less’ delinquent and thus not eligible for the New Start Fund. The claims in this category total KRW 400 billion.

For vulnerable groups such as recipients of the Basic Livelihood Benefit and recipients of the Disability Pension, recovery will be waived without any assessment of repayment capacity. However, cases involving ongoing debt adjustment or rehabilitation, cases with assets that can be used for repayment, or cases where asset concealment is suspected will be excluded from write-offs.

The government will also improve the system so that the debts of people who are struggling to repay can be adjusted earlier. At present, because lenders can recover funds through guarantees provided by public institutions, they have little incentive to proactively reduce debtor balances or change repayment terms. Accordingly, the government will coordinate with financial companies to facilitate debt adjustment and plans to shorten the current 6~9 month adjustment process to within 3~6 months.

The authorities also unveiled a plan to introduce a ‘Comprehensive Inclusive Finance Evaluation System’ that assesses the inclusive finance performance of private financial companies and publishes it annually. The five evaluation items are governance, supply of funds, debt adjustment, social consideration, and non-financial services. Seventeen banks will be evaluated this year, and the first results will be announced in March next year. From next year, the scope will expand to the secondary financial sector.

Financial institutions with excellent results will have their contributions to the Inclusive Finance Agency reduced by up to 20%, while those with insufficient results will face increases of up to 20%. To this end, the government will push to amend the Enforcement Decree of the Inclusive Finance Act. It will also move to amend the Financial Consumer Supervision Regulations so that fines imposed for violations of the Financial Consumer Protection Act can be reduced by up to 10%.

Chair Lee said, “For inclusive finance to take root not as a one-off act of goodwill but as an essential duty, it must be fully embedded as organizational culture,” adding, “In the initial evaluation, we will focus on inspecting and assessing the governance area, including strategy‧organization‧process.”