Korea Asset Management Corporation (KAMCO), which handles the purchase and cancellation of long-term arrears bonds, decided to thoroughly verify debtors' repayment capacity before the statute of limitations expires to reduce concerns about moral hazard. It will establish a separate committee to review repayment capacity and tighten the conditions for the completion of the statute of limitations.
According to the financial sector on the 29th, KAMCO revised its internal rules to strengthen the screening of debtors' repayment capacity before the statute of limitations for arrears bonds is completed. KAMCO will form a committee to review repayment capacity and decide on completing the statute of limitations after examining data from an investigation into the debtor's assets.
KAMCO decided to extend the statute of limitations if, in the committee's review, the debtor is deemed to have repayment capacity. The committee will also decide whether to file a lawsuit to extend the statute of limitations. The aim is to closely examine debtors' repayment capacity before completing the statute of limitations on long-term arrears bonds and canceling them, to select who will be supported. As a rule, the statute of limitations on bonds is five years.
It also strengthened the conditions for completing the statute of limitations. ▲ If no investigation has been conducted into the property of the parties to the debt ▲ if debt adjustment or individual rehabilitation procedures are underway ▲ if completing the statute of limitations is likely to cause moral hazard for the parties to the debt, the statute of limitations may be extended.
KAMCO also began selecting a legal support institution to assess the recoverability of long-term arrears bonds acquired by the New Leap Fund. The New Leap Fund is a program to purchase and cancel long-term unsecured arrears bonds that have been in arrears for seven years or more and are 50 million won or less, to ease the debt burden of small business owners and vulnerable groups. The legal support institution will assess the recoverability of bonds acquired by the New Leap Fund and, if concealed assets are found, recover them through legal action.
This measure follows the implementation next month of an amendment to the Credit Information Act that allows debt adjustment bodies such as KAMCO to assess whether a debtor has repayment capacity without the debtor's consent. The amendment allows debt adjustment bodies, as notified by the Financial Services Commission, to receive property information from information-holding institutions—including not only financial assets such as deposits, savings, and securities but also virtual asset holdings and tax and real estate information—when reviewing a debtor's repayment capacity to decide on principal and interest reductions or bond cancellations. Based on this, the financial authorities plan to conduct repayment capacity reviews in the third quarter of this year and proceed with bond cancellations starting in the fourth quarter.