Pushing to Extend the Debt Repayment Period of Credit Delinquents

The government has decided to lay out a program to help credit delinquents under the protection of basic standards of life by making banks write-off part of their debt.

Also, they are carrying forward with a so-called bad bank plan in which one million credit delinquents who are on the blacklist of several financial service companies pay back the money over a long period of time.

Accordingly, it seems possible for credit delinquents under protection of basic standard of life and multiple debtors to resume normal financial activities through a debt re-scheduling program.

However, since such a program could raise a moral hazard, creating a new kind of credit delinquent, it is becoming the target of criticism.

A top-ranking official of Finance and Economy Ministry stated on Sunday concerning the plan of helping credit delinquents that “the financial service companies should also take responsibility for lending money to the people under protection of basic standard of life who have no capability of repaying the debt. We are already working together with the banks to come up with a specific program.”

Meanwhile, a total of 620 financial services companies, which participated in forming bad banks in November of last year, are working together to collectively recover their overdue loans and credit card debts extended to one million credit delinquents among the 1.8 million credit delinquents, excluding 170,000 people who have applied for debt re-scheduling and credit delinquents who have debts by becoming sponsors.

A City Bank-related official explained, “A collection company has been established and given all the credit delinquent debts from the financial service companies in order to look for ways to collect the money through debt re-scheduling programs such as reduction of interest rates and extensions of repayment periods.”

As follows, it seems like credit defaulters (subjects who are in arrears for more than six months with an amount less than 50 million won in more than two financial services companies since March 10 of last year) who have yet to receive debt re-scheduling will have a practical opportunity to take a debt re-adjustment benefit without being stressed by the various financial service companies.

Chi-Young Shin higgledy@donga.com