Eliminating the Blind Spots of "Predatory Finance"... Government Launches Comprehensive Investigation into Long-term Delinquent Bonds Held by Public Institutions

Investigation into Public Institutions’ Bad Debt Practices Triggered by the “Sangnoksu Incident”

Revamping Management and Collection Practices... Unified Oversight by KAMCO Under Review

National Assembly Budget Office: “Personal Bad Debts at

The government has begun its first comprehensive investigation into long-term delinquent bonds held by public institutions. As controversy over so-called "predatory finance" has intensified in the wake of the private bad bank "Sangnoksoo" case, which continued debt collection for over 20 years, financial authorities are now targeting non-performing loans at public institutions that had previously been left in a regulatory blind spot. This investigation is expected to bring the overall practices of handling and collecting long-term delinquent bonds at public institutions under scrutiny.

According to financial authorities on the 27th, the Financial Services Commission is promoting an investigation into the status of long-term delinquent bonds held by public institutions such as Korea Asset Management Corporation (KAMCO), Korea Credit Guarantee Fund, Korea Technology Finance Corporation, Korea Housing Finance Corporation, and Korea Deposit Insurance Corporation. This is the first time that financial authorities have included non-performing loans held by public institutions in a comprehensive investigation, following their previous review of private non-performing loan management companies in the form of Special Purpose Companies (SPCs).

An official from the financial authorities stated, "Although the scale of long-term delinquent bonds held by public institutions is presumed to be significant, the overall status has not even been accurately assessed," and further explained, "We plan to conduct a thorough inspection of the scale and management status of delinquent bonds scattered across each institution, and then prepare plans for debt resolution and institutional improvements."

Previously, in October last year, the government established the "New Leap Fund," a bad bank under KAMCO, and began purchasing long-term delinquent bonds from financial companies. The New Leap Fund operates by purchasing unsecured bonds with a delinquency period of seven years or more and a principal amount of up to 50 million won from individuals and sole proprietors, then either extinguishing the debt or adjusting the liabilities.

However, long-term delinquent bonds held by public institutions had so far been excluded from such purchases. As a result, even while financial authorities have pressured private financial companies such as banks and lenders to resolve long-term delinquent bonds, they have continued to face criticism for neglecting the management and collection practices of non-performing loans at public institutions. The controversy further escalated when it was revealed that Sangnoksoo, an SPC-type non-performing loan management company established during the 2003 credit card crisis, had continued debt collection from debtors for over 20 years.

According to the National Assembly Budget Office, among individual non-performing loans held by public institutions such as KAMCO, Korea Credit Guarantee Fund, Korea Technology Finance Corporation, Korea Housing Finance Corporation, Korea Trade Insurance Corporation, Small Enterprise and Market Service, and the Korea Inclusive Finance Agency, the proportion of bonds written off as accounting losses dropped from 23.3% in 2018 to 16.6% in 2025. This means that the number of debtors exposed to extended debt collection has not decreased accordingly.

In fact, the total volume of individual non-performing loans held by public institutions increased by over 16 trillion won, from 28.0114 trillion won in 2018 to 44.4478 trillion won in 2025. Over the same period, the number of debtors surged from about 1.78 million to 2.5 million.

The proportion of debts adjusted directly by public institutions also fell from 45.7% in 2018 to 34.6% in 2025.

As the public sector has effectively become a blind spot for "predatory finance," the government plans to overhaul related systems following this comprehensive investigation. In particular, transferring long-term delinquent bonds held by public institutions to KAMCO for unified management is also being considered.

Previously, in 2017, the Financial Services Commission announced plans to standardize the management criteria for non-performing loans, which had previously varied by institution, and to expand write-offs and sales, through its "Plan for Improving the Management of Non-Performing Loans at Public Institutions." At that time, the commission clarified ambiguous and abstract write-off criteria such as "unrecoverable" or "no practical recovery benefit" into more concrete standards like subrogation or one year after the purchase of the bond. It also planned to gradually sell non-performing loans from 2017 and to encourage the regular sale of written-off bonds occurring afterward.

However, there are criticisms that such institutional reforms have not been effectively implemented in practice. This is because, with conflicting interests among institutions, concerns over moral hazard, and internal resistance to the sale of non-performing loans, many public institutions have continued to hold bonds for extended periods, relying on their own collection efforts.

Another official from the financial authorities explained, "Public institutions tend to be relatively passive in reducing their bond holdings or collection workforce due to concerns over organizational downsizing."

However, unresolved issues remain regarding the debate over moral hazard in debt relief for vulnerable groups.

An official in the financial sector pointed out, "Indiscriminate debt relief for financially vulnerable groups will ultimately increase the burden on public institutions, which can only be covered by taxpayer money," adding, "If the market receives the wrong signal that 'it is acceptable not to repay debts,' those who have faithfully repaid their debts may feel a greater sense of deprivation." He further emphasized, "It is most important to find a balance between supporting rehabilitation for vulnerable groups, preventing moral hazard, and maintaining market principles."

This content was produced with the assistance of AI translation services.