The Lend Association will resubmit its opinions related to the bad bank to the Financial Services Commission. The Lend Association has repeatedly expressed concerns that the industry could incur losses due to a low purchasing price ratio during meetings with financial authorities. As the purchasing ratio for bad bank bonds is expected to be released soon, the intention is to reflect the industry's stance as much as possible during the final coordination process.
According to the financial industry on the 25th, the Korea Asset Management Corporation (KAMCO) plans to establish a bad bank soon and finalize the level of the bond purchasing price ratio. Currently, it is reported that the financial authorities estimate the purchasing price ratio for long-term arrears bonds at an average of 5%. The Lend Association is expected to submit a statement to the Financial Services Commission as soon as the purchasing price ratio is finalized.
The Lend Association plans to convey its concerns to the Financial Services Commission that the industry could incur significant losses if the purchasing price ratio is set too low. It is also expected to explain that member companies may be reluctant to sell bonds if the purchasing price ratio is set low. Since the purchasing price ratio has already been determined, there will likely be suggestions for providing policy support or benefits to lending companies.
The Lend Association has reportedly expressed the same opinion to officials at the Financial Services Commission during meetings with financial authorities multiple times, including at the bad bank policy briefing held on the 25th of last month.
A bad bank is an entity that buys distressed assets or bonds at a discount to reorganize them. This program targets individuals with unsecured debts of less than 50 million won that are more than seven years in arrears. The government estimates that the total amount of these distressed debts is approximately 16.4 trillion won, affecting around 1,134,000 people. Compared to the New Start Fund of the previous Moon Jae-in administration (6.2 trillion won, 130,000 people), the scale of bonds is 2.5 times larger, and the number of targeted individuals is 10 times greater.
Currently, the lending industry has outstanding loan bonds amounting to 2 trillion won, the highest among financial sectors. If the purchasing price ratio is set at 5%, it would mean disposing of 2 trillion won in sales bonds for only 100 billion won.
The lending industry generally purchases large amounts of arrears bonds that arise from secondary financial sectors. Among those in arrears, there are also individuals who continue to repay consistently, increasing the likelihood of recovering the principal as more bonds are purchased. Selling bonds at a low price will inevitably impact the industry's revenue structure in the long term.
The lending industry must also pay hundreds of billions of won in contributions for the establishment of the bad bank. The government plans to secure 400 billion won of the total funding of 800 billion won for the bad bank through contributions from financial sectors. It is expected that the banking sector will contribute 350 billion won, while the secondary financial sector, which includes lending businesses, will bear the remaining 50 billion won.
A representative from the lending industry noted, "If bonds are sold at a bargain price, the losses for the industry will be substantial both in the short term and long term," and explained that measures are needed to reasonably assess the purchasing price ratio or provide policy incentives.