The Lee Jae-myung administration's bad bank "New Leap Fund," created to support the cancellation of long-term arrears claims and debt restructuring for small merchants and vulnerable groups, was officially launched on the 1st. Financial Services Commission Chairperson Lee Ok-won said, "We will thoroughly conduct repayment-capacity screenings to minimize the possibility of moral hazard and expand support for diligent repayers so there are no fairness issues."
The Financial Services Commission and the Korea Asset Management Corporation (KAMCO) held a launch ceremony for the New Leap Fund at the Credit Counseling & Recovery Service (CCRS) headquarters on the 1st. The event was attended by Kang Jun-hyun, the ruling party secretary of the National Policy Committee and a Democratic Party of Korea lawmaker, Chairperson Lee, FSS Senior Deputy Governor Lee Se-hoon, KAMCO President Jeong Jeong-hoon, New Leap Fund CEO Yang Hyeok-seung, and Korea Federation of Banks Chairman Cho Yong-byung, among others.
The New Leap Fund is the new name for the bad bank. KAMCO finalized the name of the bad bank through a public naming contest held for three weeks starting Jul. 14. Vulnerable groups and individual self-employed people with unsecured debt of 50 million won or less that has been in arrears for seven years or more are eligible for support. The size of arrears claims subject to debt restructuring is estimated at about 16.4 trillion won, with an estimated 1,134,000 beneficiaries.
A key feature is tiered debt restructuring support based on the borrower's repayment capacity. If a borrower's income is at or below 60% of the median income and akin to personal bankruptcy, long-term arrears claims will be canceled within one year. If the borrower exceeds this threshold or has recoverable assets short of the debt amount, the borrower will sign a debt restructuring agreement under the supervision of the Credit Counseling & Recovery Service, with support applied for a 30%–80% principal reduction, installment repayment for up to 10 years, full interest waiver, and a repayment grace period of up to three years. If income exceeds 135% of the median income, the borrower is deemed to have repayment capacity, and collections will resume.
To enhance fairness, a debt restructuring program will also be prepared to support "borrowers in arrears for less than seven years," who are excluded from eligibility. After visiting the Integrated Support Center for People's Finance to apply, borrowers can sign an agreement under the supervision of the Credit Counseling & Recovery Service. This program will run for three years starting Nov. 14. In addition, to support diligent repayers who are steadily paying down their debts, a special loan program worth 500 billion won will be promoted. The limit is up to 15 million won per person, with an annual interest rate of about 3%–4%.
To prevent moral hazard, liabilities arising from stock investment and the debts of sole proprietors engaged in gambling or adult entertainment businesses will be excluded from support. Foreign creditors will also be excluded from eligibility. In addition, an asset concealment reporting center will be operated to nullify any write-off measures when fraudulent beneficiaries are found, and such individuals will be registered as "financial order violators," facing disadvantages in credit transactions for up to 12 years.
The Financial Services Commission also dismissed controversy over preferential double debt restructuring for multiple-debt holders. Because the bad bank is structured so that the fund purchases all long-term arrears claims from financial companies that meet certain criteria, duplicate debt write-offs are possible. For example, if there is a long-term arrears claim of 50 million won at Bank A and 10 million won at Savings Bank B, the fund will buy both claims, and the borrower will have 60 million won of debt written off. In response, the commission said, "For multiple-debt holders, the total amount of purchased claims may exceed 50 million won per person, but any purchase exceeding 50 million won per person will be sold to KAMCO and handled under KAMCO's general claim management procedures."
The financial sector's cost-sharing for the bad bank's contributions, which had been a source of conflict, has also been finalized. Of the 440 billion won, the banking sector will shoulder 360 billion won, or 80%, and the remainder will be contributed by life insurance 20 billion won, non-life insurance 20 billion won, specialized credit finance 30 billion won, and savings banks 10 billion won each.