The credit industry is struggling to set the criteria for sharing the contributions to the bad bank (New Leap Fund), a program that forgives the debts of long-term borrowers in arrears. Corporations with many claims in arrears argue that the contributions should be set by asset size, while those with large asset size argue that the contributions should be calculated by the size of claims in arrears. The credit business involves lending money to customers or providing credit and includes the credit card business, leasing and installment finance, and new technology finance.
According to the financial industry on the 26th, the Credit Finance Association recently held a meeting with member companies, including eight card companies (Samsung Card, Shinhan Card, Hyundai Card, Lotte Card, KB Kookmin Card, Hana Card, Woori Card, and BC Card), to set the criteria for calculating contributions to the New Leap Fund. The association was said to have mentioned asset size, basic capital size, and the size of claims in arrears as criteria for calculating contributions.
The New Leap Fund is a program to help long-term borrowers in arrears get back on their feet, jointly promoted by the Financial Services Commission and Korea Asset Management Corporation (KAMCO). It buys unsecured claims in arrears held by financial institutions for seven years or more and of 50 million won or less, and either cancels them or adjusts the debt. The New Leap Fund totals 840 billion won, funded by 400 billion won in government finance and 440 billion won in financial sector contributions. Banks are expected to shoulder about 360 billion won, life and non-life insurers 40 billion won, specialized credit finance companies 30 billion won, and savings banks 10 billion won.
The size of claims eligible for the New Leap Fund in the credit finance sector is 1.9 trillion won, reportedly the second largest after the lending sector at 6.7 trillion won. The average purchase price ratio for the New Leap Fund proposed by the government is about 5%. About 20% can be recovered if distressed claims are disposed of on the market. For example, if a 1 million won distressed claim is sold on the market, 200,000 won can be received, but only 50,000 won if it is transferred to the New Leap Fund.
How much each corporation will submit in claims in arrears to the New Leap Fund is decided by each association. Each corporation is arguing for criteria favorable to itself to submit as few claims in arrears as possible. Since opinions were not coordinated at the first meeting, the Credit Finance Association plans to hold second meetings by sector—card and capital—within this month to resume discussions.
An industry official said, "For banks, where the size of distressed claims relative to assets is small, talks on sharing contributions have wrapped up relatively smoothly, but for secondary financial institutions with a heavy burden of distressed claims, coordinating opinions is taking time."