The 'bad bank' being pushed by the Lee Jae-myung government, which is an institution for processing non-performing loans, will be established this month in the form of a special purpose company (SPC). The bad bank is scheduled to start purchasing long-term arrears from October this year, but tasks such as determining the scale of differential contributions from financial companies like banks and pricing for bond purchases remain unresolved.
According to the financial sector on the 7th, the Korea Asset Management Corporation (KAMCO) held a board meeting on the 1st and approved the establishment of an SPC for the operation of a long-term arrears bond incineration program and capital contribution matters.
The SPC is a kind of paper company established for selling bonds. Establishment of a nonprofit corporation similar to the 'Jubilee Bank,' which the president operated as a co-chair during his time as mayor of Seongnam, was also considered, but it was ultimately decided to proceed with an SPC. The advantage of the SPC is that it allows for the free distribution of responsibilities between the public and private sectors, such as banks.
However, there is a drawback in that it takes time to coordinate interests. KAMCO is currently in discussions with various industry associations regarding the distribution ratio of resources, but negotiations are facing difficulties. The government's plan is to secure 400 billion won from the financial sector out of the required 800 billion won for the bad bank, but there is a struggle over 'who will contribute how much.'
It is reported that the bank with the largest profit among financial institutions is likely to cover 90% of the 400 billion won, which is about 350 billion to 360 billion won. The key issue is how to divide the remaining 40 billion to 50 billion won across different sectors. Target sectors include insurance, credit finance companies, savings banks, and mutual finance institutions. Securities firms and asset management companies are excluded due to the lack of relation to debt relief. A financial authorities official noted that they will complete the contribution negotiations by early September and finalize the bond purchase agreement.
There are sharp differences in positions regarding the bond purchase price ratio. Financial companies selling long-term arrears want to sell bonds at high prices, while the government, which is buying them, is seeking to reduce costs by lowering the prices. The financial authorities budgeted the bond purchase price ratio at 5%. For example, if the bond value is 1 million won, they mean to buy it for 50,000 won.
The lending industry argues that the purchase price ratio is too low. They buy arrears at 25% of the bond value, so selling them at 5% is a loss. The financial authorities are exploring incentive measures to reduce resistance from the lending industry. Options being discussed include arranging bank loans for lending companies that primarily secure funds from savings banks or capital companies.