700,000 Credit Defaulters to be Relieved by this Year

The Ministry of Finance and Economy announced yesterday that a plan to reduce 700,000 of the credit defaulters with multiple obligations by the end of the year will be pushed forward.

Also, among the credit defaulters who have debts to a single financial company (1.37 million), small-amount debtors will undergo the company’s examination and will be supported to recover their credits by extending the expiration date for a certain period of time.

Lee Hun-jai, Finance-Economy Minister and Deputy Prime Minister, held a press conference at the Gwacheon Government Complex yesterday and announced the present situation of the credit defaulters and how it will be coped with, based on the details mentioned above.

However, this counter plan is made on the premise that “debts will be paid off earnestly,” but there are contents included which practically reduces the defaulter’s principal and interest. There is criticism that this may agitate a moral hazard.

The Finance-Economy Ministry has decided to relieve credit delinquents with multiple obligations (2.35 million people) by the end of the year with the following plans: 200,000 people through individual workout programs with the Credit Counseling & Recovery Service, 100,000 people through the joint debt collection program in which 10 financial companies are participating, and 400,000 people through “bad bank.”

Bad banks will give debtors with multiple obligations which have “a total debt under 50 million won and the overdue period under three months (or six months)” who pay three percent of their principal a long-term low-interest (eight years at the longest, six percent annual interest) loan to pay off the rest of the debt and will cancel the credit default registration.

The Finance-Economy Ministry has also decided to exclude the 145,000 delinquent tax payers which are not concerned with commercial transactions off of the credit default list. A plan to exclude 185,000 people registered at the Seoul Guarantee Insurance as credit defaulters from delayed cell phone charges is under consideration.

Some finance experts pointed out, “Settling the credit delinquent matter is urgent, but with the upcoming election, the government pressed onto the financial companies and put out the plans in haste.”

With the Korean Asset Management Corporation participating in the bad bank and supporting 500 billion won in the form of loans, the responsibility matter following the case where debt collection does not go well will be projected.

The organization that gathers and handles multiple debts in one place is called a “bad company.” It has been used to gather insolvent company loans in one place and manages them. The “bad bank” will be established around May with a joint finance of banks, credit card companies, the Seoul Guarantee Insurance, and the Korean Asset Management Corporation to handle credit debts.

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