Sales of delinquent receivables open from new month
Lower delinquency rate to ease worsening soundness
The loan threshold for vulnerable borrowers is likely to be lowered.
▲ Page 14 Financial authorities have opened the way for savings banks to sell overdue receivables of private businesses to the Korea Asset Management Corporation (KAMCO) and private investment companies specializing in non-performing loans (NPL). As the delinquency rate of savings banks soared to the 6% range, raising a red light on their soundness, they were able to lower the delinquency rate by quickly resolving non-performing loans.
The authorities announced these details on the 24th through the ‘Task Force (TF) for Improvement of Systems Related to Clearing Delinquent Claims at Savings Banks’ and announced that they would be implemented from next month. This measure is due to the rapidly worsening delinquency rate of savings banks. The savings bank delinquency rate was 6.15% in September last year, an increase of 2.74 percentage points from 3.41% at the end of 2022.
When delinquent bonds are sold, the delinquency rate of savings banks naturally goes down. However, savings banks have been passive in selling delinquent receivables to individual businesses. According to the agreement, delinquent claims of savings bank individual businesses could only be sold through the New Start Fund, because the purchase price of the New Start Fund was relatively low. In the long term, it is expected to have a significant effect on vulnerable borrowers suffering from a loan cliff. An official from the savings bank industry said, “Once an acceptable price is established, savings banks will actively sell delinquent bonds of individual businesses,” adding, “In this case, the delinquency rate of savings banks will naturally go down. “Then, the loan threshold that has been raised through soundness management will be lowered,” he said.
Measures have also been put in place to protect borrowers. To prevent excessive collection, the authorities strictly limited the institutions that can purchase delinquent loans from private businesses to KAMCO and investment companies specializing in non-performing loans that pass the authorities’ standards. Additionally, instead of allowing savings banks to preemptively sell delinquent bonds of private businesses, the authorities fully informed the borrowers of this fact and required them to repurchase the bonds even after the sale if the borrowers wanted to adjust their debt with the New Start Fund. This is because even if savings banks want to sell delinquent claims, there are many cases where they are unable to sell them because the borrower does not respond or their whereabouts cannot be confirmed.
If there is no response or confirmation of whereabouts after going through explicit confirmation procedures, such as notifying the fact that ‘it may be sold to an institution other than the New Start Fund’ through proof of contents or court public notice, the savings bank will issue delinquent claims to individual business owners. It can be sold. An official from the Financial Services Commission said, “We prevent excessive collection and guarantee opportunities for debt restructuring through the New Starting Fund, but financial companies cannot continue to hold non-performing loans from borrowers whose intention to apply for debt restructuring from the New Starting Fund is not clear, so they can be sold to third parties.” said.
The criteria for classifying the soundness of vulnerable borrowers will also be clarified so that prior debt restructuring programs such as maturity extension can be carried out more smoothly. Advance support programs such as maturity extension have been classified as ‘precautionary’ bonds because the soundness standards are not clear even though no actual delinquency has occurred. Savings banks tended not to actively provide support in advance due to the resulting burden of accumulating loan loss reserves.
Reporter Shin Yung-ah
2024-01-24 10:35:18
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