"Fiscal Deterioration Cannot Be Ignored"... Financial Services Commission to Grant Nongshinbo the Right to Request Tax Information

Decrease in Basic Assets Due to Increase in Subrogation Amount

[Asia Economy Reporter Kim Hyo-jin] Financial authorities have decided to grant the Nonglim Susan Eopja Credit Guarantee Fund (Nongshinbo) the right to request debtor tax information. The purpose is to improve the worsening financial situation by actively pursuing subrogation claims based on tax information.

According to financial authorities on the 17th, the Financial Services Commission recently announced the 'Partial Amendment to the Nonglim Susan Eopja Credit Guarantee Act' containing this provision for public comment. The amendment allows Nongshinbo to request tax information about debtors from the relevant tax office or local government.

The Financial Services Commission explained the background of the amendment, saying, "Nongshinbo's basic assets are decreasing due to a rapid increase in subrogation payments for debts guaranteed by Nongshinbo to farmers, foresters, and fishery workers. By granting the right to request tax information about debtors, we aim to secure stable funding for the fund by facilitating the exercise of subrogation rights."

Subrogation is a procedure where the guarantor repays the debt if the debtor fails to do so. In this case, the guarantor acquires a subrogation claim against the debtor.

Nongshinbo is a fund established to guarantee credit for farmers, foresters, and fishery workers who have weak collateral when borrowing funds. Unlike the Credit Guarantee Fund and Technology Guarantee Fund, which have separate independent operating entities, Nongshinbo is operated by the National Agricultural Cooperative Federation.

A Financial Services Commission official said, "While Shinbo and Kibo have the right to request tax information, Nongshinbo does not. Considering the continuous deterioration of Nongshinbo's finances over the past few years, we decided to pursue the amendment."

The scale of subrogation payments by Nongshinbo, which was 154.4 billion KRW in 2015, sharply increased to 147.3 billion KRW in 2016, 209.2 billion KRW in 2017, 277.6 billion KRW in 2018, and 326.5 billion KRW last year. Conversely, surplus funds shrank from 1.4032 trillion KRW in 2015 to 485 billion KRW last year. New guarantees last year amounted to 8.6112 trillion KRW, and the cumulative guarantee balance until last year was 16.1117 trillion KRW.

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As the guarantee balance increased while the fund decreased, the operating multiple (guarantee balance relative to fund balance) as of the end of May exceeded 17.4 times, far surpassing the appropriate multiple of 12.5 times. The government barely overcame the crisis by deciding to inject an additional 100 billion KRW in the supplementary budget in June.

Concerns over the operation of Nongshinbo funds are not new. In October last year, the Board of Audit announced the results of an audit on Nongshinbo's guarantee operations, pointing out the lack of comprehensive guarantee screening standards, unlike other guarantee institutions that comprehensively review financial status and debt repayment ability.

It was even revealed that guarantees were executed for insolvent corporations as long as the debt size was within 600% of equity capital. In contrast, Shinbo guarantees only if the debt size is within 400% of equity capital.

The Board of Audit notified the National Agricultural Cooperative Federation to strengthen guarantee screening standards for corporations and individual businesses and urged the Financial Services Commission to strengthen guidance and supervision over Nongshinbo's fund management.

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