“Small Payment Debts Should Be Taken from Banks”

Countermeasures for each individual financial company to extend the redemption period for late payments consisting of small amounts or induce them into lightening the obligation burden are being considered. The government is planning to give incentives to financial companies which are coming forth with adjustment plans for obligations.

Finance Minister Lee Hun-jai met with reporters yesterday, and regarding the credit debt matter, he said, “Debtors with small obligations and credit defaulters at their limits will be managed at the bank teller’s window.”

Each individual financial company takes the initiative to handle credit defaults—

Minister Lee said yesterday, “The government decided not to announce a “packaged” general countermeasure to avoid misapprehension as a “benevolent policy.” Each individual credit card company will lead the general direction, and the government will support it.” Accordingly, Minister Lee will announce the basic outline for the credit debt matter at the regular briefing on March 11.

He said that a three-step plan in which each company supports their small payment delayers, debts of multiple defaulters managed through “bad banks” (bad bank : a place where the banks’ bad debts are gathered and managed), and individual workouts through the Credit Counseling & Recovery Service is being pushed to handle the credit debts.

Relating to the handling of small payment obligators, he emphasized, “Small payment obligators with late payments below five million won take up one-fourth of all credit defaulters. Looking from the bank’s view, the loss is already handled and can be received back slowly in five to eight years and so should be dealt with at the banking window.”

For this matter, the credit default support program that Hana Bank is conducting presently was given as an example. In the case of Hana Bank, the 18,000 credit defaulters with debts less than five million won can repay five percent of the principal, and then the rest will be switched to an eight-year long term loan and the credit default registration will be cancelled.

Can principal sums be written off?—

Minister Lee said on the premise, “The principal and interest can not be bilked,” yet he also added, “If it is paid back earnestly, an incentive will be provided and credit card companies will not drag to the eighth year”, showing that writing off part of the debt is also being considered.

Regarding the bad bank, he pointed out, “Multiple obligations concerning a certain amount of money should be handled altogether at once. In order to manage this, a Special Purpose Company (SPC) where every financial company which has claims against the credit defaulters participates should be made.”

Effectiveness of this system—

It is a question of how effective this three-step plan to settle the credit default matter will be.

Relating to the credit recovery support that each individual financial company had given, major commercial banks took their own initiative and conducted a credit recovery program, but for the critical terms, not many defaulters received benefits from it. For the bad bank, the joint collecting of multiple obligations program lead by the Industrial Bank and LG Investment & Securities did not prove effective due to the passive participation of financial companies.

Chi-Young Shin Jong sik Kong higgledy@donga.com kong@donga.com