Non-Bank Financial Institutions “Extend Maturity for LG Card Bonds”

Following the creditors’ decision to lend two trillion won to LG Card Co., non-bank financial institutions such as investment trust companies and insurance companies have agreed to extend the maturity date for LG Card bonds. LG Card also normalized its cash advancement services, which have been suspended since November 21, on the afternoon of November 24.

In the investment trust industry on November 24, the CEOs and officials of 28 investment trust companies and six asset management companies held a meeting to discuss extending the maturity date for LG Card bonds.

The insurance industry also convened an emergency meeting in which each insurance company agreed to extend the maturity date for the cash-strapped company’s bonds.

LG Card resumed its cash advancement service, which had been suspended for four days from November 21, at approximately 4:10 p.m. on November 24, as funds provided by the creditors flowed in.

LG Card is expected to announce its restructuring plan on November 25, including plans to accept early retirement applications from about 500 of its 2,700 employees and to decrease its 26.54 trillion won-worth total assets by selling bad debts and disposing of insolvent cardholders.

Financial officials are preparing a comprehensive measure to prevent the recurrence of a similar credit card company crisis. “Credit card companies expand their business by rashly bringing in funding. The effect on the financial market is tremendous in a crisis. We are considering reducing the limit for funds,” says a Financial Supervisory Commission official.

In relation to this measure, also under consideration is curtailing the issuing amount of card companies’ bonds and Commercial Papers (CP) to four times the amount of its equity capital, instead of the current ten times and converting its short-term bonds such as CP for less than one year to long-term bonds for more than one year.

Currently 9.88 million people hold more than four credit cards, and there are concerns that if regulation is strengthened, the number of defaulters will increase from the current 3.5 million (at the end of October).

Kim Jin-pyo, Deputy Prime Minister and Minister of Finance and Economy, responded to the criticism that the government excessively intervened in resolving the LG Card crisis saying, “All the government did was provide information to the creditors to prevent misjudgments and ask that they judge the situation wisely.”