Two months have passed since the New Leap Fund, which forgives the debt of vulnerable borrowers, was launched, but participation by the lending industry, which holds more than half of arrears receivables, remains low. The Korea Asset Management Corporation (KAMCO) has tried to persuade them, but the lending sector is pushing back, saying the New Leap Fund is trying to buy arrears receivables at fire-sale prices.
As of the 12th, KAMCO said 28 lending companies had signed the New Leap Fund agreement. That is up by three from 25 on the 8th of last month. Among participating companies, three are in the top 10 by asset size, up from two the previous month. The top 10 companies hold about 80% of the lending industry's arrears receivables, making participation by large firms crucial.
The New Leap Fund forgives receivables in arrears for seven years or more with principal of 50 million won or less. Financial institutions hold a total of 1.28603 trillion won in arrears receivables, and the lending sector's arrears receivables amount to 672.91 billion won, more than half. The rest are held by card companies (190 billion won), banks (123 billion won), insurers (64 billion won), and mutual finance institutions (60 billion won).
The lending industry argues that the government's purchase price for arrears receivables is unreasonably low. The offered price is about 5% of face value. If a 1 million won arrears receivable is sold on the market, it would fetch about 250,000 won, so handing it over to the New Leap Fund for 50,000 won is excessive, they say. Calculated across the industry's arrears receivables, the gap between market prices (25% of face value) and the government's offered purchase price amounts to 1.3458 trillion won.
After the fund's launch, KAMCO, which had been communicating with the industry through the lending association, began engaging individual lending companies last month. The Financial Services Commission is considering incentives such as activating the excellent lender program or allowing lending companies to enter the nonperforming loan (NPL) market.
The lending industry is demanding additional incentives or selective sales, but the Financial Services Commission says it is difficult to accept them. Selective sales would prioritize selling receivables likely to be unprofitable to the fund first, which could raise fairness issues with other financial sectors.
The Financial Services Commission and KAMCO plan to purchase long-term arrears receivables held by lending companies on a rolling basis and acquire them in stages as additional eligible receivables are identified by financial sector. A KAMCO official said, "For the smooth operation of the fund, we need the cooperation of the lending industry, so we are trying to persuade them."