The recovery rate at MG Saemaeul Geumgo Asset Management Company (MG AMCO), created by MG Saemaeul Geumgo to shed nonperforming loans (NPLs), fell far short of its target. While the federation's arrears ratio improved as NPLs were transferred to the asset management company, critics say the improvement in soundness is only numerical because unrecovered bad debt accumulates as a burden on the central federation.
According to the industry on the 16th, MG AMCO's NPL recovery rate was tallied in the 3% range. Nearly half the year has passed, but it remains far below the 20% recovery target. The Korean Federation of Community Credit Cooperatives (KFCC), MG AMCO, and MG Credit Information are adding staff and holding nationwide roadshow-style sale briefings to activate NPL sales.
An NPL-focused asset management company buys bad loans at a steep discount to face value and then recovers more than the purchase price to book a margin. If the recovery rate is low, it is likely it cannot even recoup the purchase price.
The biggest reason recovery has become difficult is the downturn in the real estate market. During a real estate boom, auction strike prices tend to be close to appraised values, but when conditions are tough, it takes longer and prices are set lower.
There is also the issue of transferring title. If collateral real estate attached to a bad loan is entrusted to a real estate trust, title on the registry is in the trustee's name. For MG AMCO, which took over the claim, to dispose of the collateral and monetize it, the trustee must settle the beneficial interest and title, but transfers are being delayed because title transfers are not urgent for the trustee and there are cases of disputes over interests.
MG AMCO is a wholly owned subsidiary for which the Korean Federation of Community Credit Cooperatives (KFCC) invested 30 billion won in July last year. It was established to purchase, sort out, and recover bad loans from credit cooperatives nationwide. As credit cooperatives transferred bad loans to MG AMCO, the arrears ratio, which was 8.37% in the first half of last year, fell to the 5% range, the target for early this year.
However, as NPLs have not been recovered as expected, MG AMCO's losses are mounting. If losses continue to pile up, the burden on the central federation increases. A central federation official said, "MG AMCO is a company that just marked its first year," and added, "We are adding staff and seeking cooperation from affiliates, so the recovery rate should improve more quickly."