Application for Debt Relief Increased Due to COVID-19

Rapid Increase in Use of Shinbokwi Quick Debt Adjustment After Q2
Growth Expected to Continue Due to COVID-19 Resurgence and Other Effects

[Asia Economy Reporter Kim Hyo-jin] It has been revealed that cases of people who borrowed money from multiple financial institutions but experienced a decline in repayment ability due to circumstances such as job loss or business closure and used the Credit Recovery Committee's (CRC) 'Rapid Debt Adjustment' system have surged since the second quarter of this year. It is expected that the number will increase further in the second half of the year due to the impact of the novel coronavirus disease (COVID-19), which began to spread in earnest from February.

According to the CRC on the 7th, the number of users of the Rapid Debt Adjustment system increased from 1,175 in the first quarter to 1,920 in the second quarter. This is a 63.4% increase compared to the first quarter. In July, 673 people and in August, 627 people received rapid debt adjustment. With one month left in the third quarter, the number of users has already surpassed that of the first quarter.

Considering the trend over the past two months and the spread of COVID-19, it is expected that the number of users in the third quarter will exceed or at least be similar to that of the second quarter.

The Rapid Debt Adjustment system was introduced in September last year. Borrowers who have taken loans from two or more financial institutions such as banks, credit card companies, or savings banks and have overdue payments of 30 days or less, or are at risk of overdue payments, can apply. However, the borrower must have reduced repayment ability due to unavoidable circumstances such as job loss, leave of absence, business closure, or illness, the total debt must be 1.5 billion KRW or less, and the newly incurred debt within the last six months must be 30% or less of the total debt.

If the adjustment target is confirmed with the consent of the majority of creditors based on the debt amount, the borrower can receive debt reduction, extension of repayment period, or deferment of repayment. Overdue interest is reduced, and the debt can be repaid through equal installment payments of principal and interest within a maximum period of 10 years. If immediate repayment is difficult, a repayment deferment of up to six months can also be granted.

"If long-term debt adjustment is needed, workout and other options should be considered"
Concerns over expanding personal credit crisis due to rapidly increasing household loans

The Rapid Debt Adjustment system complements the workout system, which can be used when overdue payments exceed 90 days, and the pre-workout system, which can be used when overdue payments exceed 30 days. Its purpose is to manage debt in advance before overdue information is shared with credit information companies and financial activities are restricted.

Therefore, it is suitable for overcoming temporary crises, and the CRC explains that borrowers who need long-term debt adjustment should consider workout and pre-workout options.

In the financial sector, concerns have been raised that the rapidly increasing household loans, centered on commercial banks recently, could act as a trigger for personal credit and debt crises. Last month, personal credit loans from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?increased by a record 4.0705 trillion KRW. During the same period, mortgage loans also increased by 4.1606 trillion KRW.

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