"New Leap Fund" Launched to Support Long-Term Delinquent Debt Restructuring

원본보기 아이콘

The Financial Services Commission and Korea Asset Management Corporation announced on October 1 that they held a launch ceremony for the "New Leap Fund" at the headquarters of the Credit Counseling & Recovery Service to support the write-off and debt restructuring of long-term delinquent loans held by small business owners and vulnerable groups.

The ceremony was attended by Kang Junhyun, a lawmaker from the Democratic Party of Korea, Lee Eogwon, Chairman of the Financial Services Commission, Lee Sehoon, Senior Deputy Governor of the Financial Supervisory Service, Jeong Junghoon, President of Korea Asset Management Corporation, Yang Hyuksung, CEO of the New Leap Fund, and Cho Yongbyung, Chairman of the Korea Federation of Banks, as well as heads of other partner organizations.

Chairman Lee Eogwon stated, "Since COVID-19, the debt burden on vulnerable groups and small business owners has increased significantly, and as the recovery of livelihoods is delayed, the burden continues to grow. Therefore, extraordinary debt restructuring policies are needed at this time. The New Leap Fund is not just a program to reduce debt, but a new mechanism to help those trapped in long-term debt to become active participants in the economy again."

Chairman Lee emphasized, "Going forward, we will thoroughly conduct repayment ability assessments to minimize the risk of moral hazard, while expanding support for diligent payers to ensure fairness. At the same time, we will address the root causes of long-term debt by improving the statute of limitations system and promoting debt restructuring initiatives within financial institutions."

The New Leap Fund will begin purchasing delinquent loans from October and plans to acquire all eligible loans from partner institutions over the next year. Afterward, administrative data will be collected and a thorough review of the debtor's assets and income will be conducted, with write-offs or debt restructuring to be implemented sequentially starting in 2026.

However, for recipients of basic livelihood security and similar groups, priority write-offs will be carried out in 2025 without separate repayment ability assessments. The scale of long-term delinquent loans to be purchased through the New Leap Fund is estimated at 16.4 trillion won, with a total of 1,134,000 beneficiaries.

As the New Leap Fund will purchase all eligible loans in bulk from participating financial institutions, there will be no separate application process for debtors. When a financial institution sells a loan to the New Leap Fund, and when the New Leap Fund completes the repayment ability assessment, each debtor will be individually notified.

From the time the New Leap Fund purchases a loan, individuals will be able to check whether their debt has been purchased, the result of their repayment ability assessment, and whether the loan has been written off, through the New Leap Fund website.

Meanwhile, the Financial Services Commission also plans to implement support measures to enhance fairness. For those who have been delinquent for more than five years, special debt restructuring equivalent to the level offered by the New Leap Fund (up to 80% principal reduction and up to 10 years of installment repayment) will be provided through the Credit Counseling & Recovery Service for three years. For those who have been delinquent for more than seven years and are currently undergoing debt restructuring, low-interest loans equivalent to the level of bank credit loans will be provided, totaling 500 billion won over three years.

In addition, the Financial Services Commission will pursue comprehensive measures to address the root causes of economic hardship among vulnerable groups, including integrated employment and welfare support, and will announce a comprehensive improvement plan in the fourth quarter of this year to fundamentally curb the occurrence of long-term delinquency, including improvements to the statute of limitations system and the promotion of in-house debt restructuring.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.