Government Repays Debt... 'Haetsallon15·17' Subrogation Payment Surges 153%

28,364 Cases of August Hetsalron15(17) Subrogated Repayment
More Than Double Last Year's Total of 11,193 Cases ↑
Trend of Gradual Increase in Provisional Seizure and Litigation Cases
Responsible Agency "Stable Recovery of Reimbursement Claims, etc."

Kim Sang-ho (49, pseudonym), who lives in Gangseo-gu, Busan, recently received a special delivery notice from the court regarding the provisional seizure of his real estate. After receiving a Sunshine Loan from a savings bank and falling behind on payments for over two months due to lack of income, the Korea Inclusive Finance Agency, the guarantor, carried out subrogation payment and took subsequent measures. The claimed amount is approximately 7.9 million KRW. Kim said, "Since it is difficult to fully repay the debt, I am considering credit recovery or personal rehabilitation procedures."

It has been revealed that cases where the government repays debts on behalf of vulnerable groups using policy inclusive finance have surged. Borrowers who fail to repay even small amounts on time are rapidly increasing, facing provisional seizures, injunctions, or lawsuits. However, there are concerns about possible moral hazard among some borrowers, indicating the need for appropriate levels of post-management.

According to the "Recent Monthly and Annual Post-Action Status" submitted on the 18th by Yoon Chang-hyun, a member of the National Assembly’s Political Affairs Committee from the People Power Party, through the Korea Inclusive Finance Agency and Korea Asset Management Corporation (KAMCO), the number of subrogation payments for ‘Sunshine Loan 15(17)’ reached 28,364 cases in August. This is already 153.4% (17,171 cases) more than the total number last year (11,193 cases). The amount also increased by 99.2 billion KRW (128.9%), from 76.9 billion KRW to 176.1 billion KRW.

Subrogation payment refers to the act of a policy financial institution repaying the overdue amount on behalf of the borrower to the bank handling the Sunshine Loan, and it is one of the representative post-actions. After subrogation payment, procedures such as ordering collateral preservation measures (provisional seizure or injunction) against the delinquent borrower or proceeding with lawsuits may follow.

The number of collateral preservation measures for ‘Sunshine Loan 15(17)’ and ‘Safety Net Loan II’ is also on the rise. These two products are high-interest alternative funds based on the resources of the National Happiness Fund. Borrowers are those with personal credit scores in the bottom 20% or annual incomes below 35 million KRW. Despite this, the number of lawsuits increased from just one case in 2020 to 43 cases in August. During the same period, lawsuits also rose from 4 to 30 cases.

Concerns Over Some 'Moral Hazard'... "Strengthening Post-Management"

‘Sunshine Loan Youth,’ targeting university students and young people, saw its first subrogation payment of 139 cases last year. It has now grown about 16 times to 2,245 cases. The amount spent by the Korea Inclusive Finance Agency on subrogation payments also surged 18.3 times, from 458 million KRW to 8.4 billion KRW.

The product with the highest number of subrogation payments was ‘Worker’s Sunshine Loan,’ which peaked at 60,952 cases last year. The subrogation payments in August reached 40,037 cases, expected to be similar to or higher than last year.

As the number of subrogation payments rapidly increases, concerns about moral hazard have been raised. Since the funds are policy financial resources with relatively low interest rates, there is worry that some borrowers with income and repayment ability might deliberately avoid repayment.

The responsible agencies plan to embark on mid- to long-term focused management to improve soundness and reduce default rates. The Korea Inclusive Finance Agency set the basic direction of its ‘2021?2025 Financial Management Plan’ as ‘Securing resources and managing asset soundness for sustainable expansion of policy inclusive finance supply.’ It also included stable recovery plans for loan claims and subrogation claims in its self-help efforts and plans to invest a total of 8.2 billion KRW in post-management of guarantee support by 2025.

Financial authorities also emphasize the necessity of post-management. A financial authority official explained, "This money was created with contributions from financial companies and government resources, so if post-management is insufficient, moral hazard can occur. While methods that take away even the minimum living expenses should be avoided, if income and assets capable of repayment are found, they should be recovered through legal procedures."

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