The Financial Supervisory Service (FSS) has begun to assess the total amount of arrears across the financial sector in order to determine the size and method of the long-term small-value overdue debt disposal. The FSS plans to report the estimated total of arrears to the Financial Services Commission within this week. Once the assessment of arrears is completed, outlines for the establishment of a bad bank are expected to emerge.
According to financial authorities on the 16th, the FSS recently requested that all financial companies report in detail on their currently held arrears through the CPC (Financial Company Work Report and Data Submission Request System). The FSS demanded information on the duration of arrears, the annual scale, and details on the borrowers.
The FSS plans to receive materials by the 20th and report them to the Financial Services Commission. Banks, insurance companies, securities firms, mutual finance institutions, savings banks, etc., are targets, and lending companies are also reported to have requested information from the top 30 firms. Arrears refer to debts where the borrower has failed to pay for more than one month. If overdue for more than three months, they are classified as non-performing loans.
The administration of Lee Jae-myung plans to establish a bad bank to purchase and dispose of arrears. Small businesses meeting certain requirements, such as closure or decline in sales, are also expected to be included in the debt purchase and disposal target.
Since April 2020, the amount of loans extended due to COVID-19 support for small and medium-sized enterprises and small businesses has been approximately 50 trillion won. Of this, the loans maturing by the end of September will amount to 47.4 trillion won. In particular, loans for which both principal and interest payments have been deferred total 2.5 trillion won, which is likely to lead to arrears in the future.
Once the FSS assesses the total amount of arrears in the financial sector this month and reports it to the Financial Services Commission, the government is expected to determine the approximate scope and scale of debt restructuring next month. In particular, how to secure funds for purchasing arrears is key. In the financial sector, proposals to secure funds through government budget injection and financial sector contributions are being discussed. Looking at the non-performing loan resolution fund or restructuring fund implemented by past governments, contributions from the government and policy finance institutions, as well as from financial institutions, have been utilized. It is expected that banks, which have a large amount of arrears, will make substantial contributions.
A government official noted, 'The specific method of establishing the bad bank will be discussed in conjunction with discussions on the supplementary budget.'