Included as 'At-Risk Borrowers' Despite No Delinquency... Secondary Financial Sector on Alert for 'Non-Delinquent Borrower' Criteria

[Asia Economy Reporter Eunju Lee] Although all the details of the New Start Fund have been revealed, the secondary financial sector remains on edge. According to the Financial Services Commission, borrowers with low credit scores who are not yet delinquent are also classified as ‘borrowers at risk of default’ under the New Start Fund and can receive interest reductions. However, depending on the detailed criteria for low-credit borrowers, the impact on the industry could be significant.

On the 30th, industry sources reported that there is palpable tension in the secondary financial sector regarding the detailed criteria for ‘borrowers at risk of default’ who are ‘borrowers with low credit scores,’ the target group for the New Start Fund. Previously, during practical consultations with the secondary financial sector, the Financial Services Commission proposed the ‘bottom 20%’ of credit scores as one of the criteria for borrowers at risk of default. If this is applied, most borrowers using the secondary financial sector could be eligible for interest reductions.

A representative from the secondary financial sector said, “The 20% criterion proposed by the Financial Services Commission during practical consultations could cause considerable damage to the industry.” They added, “When converted to credit scores, this corresponds to approximately 724 to 740 points, which would include almost all ‘self-employed’ borrowers who use the secondary financial sector.” They continued, “Customers of the secondary financial sector are basically borrowers with low credit scores and a history of tax delinquency, so it could become necessary to adjust the interest rates for most self-employed borrowers.”

Previously, the Financial Services Commission included ‘non-delinquent borrowers’ as part of the criteria for borrowers at risk of default. The Commission indicated that borrowers with low credit scores, those who have closed their businesses, borrowers who find it difficult to extend loan maturities, and those registered in credit information management due to tax delinquency could also be included as ‘borrowers at risk of default.’ However, detailed information on this is kept confidential to prevent moral hazard. If these details were fully disclosed, borrowers might intentionally apply for the New Start Fund based on these criteria.

Concerns have also been raised inside and outside the government regarding the Financial Services Commission’s policy to include non-delinquent borrowers as eligible for support. A government official said, “There is suspicion that the Financial Services Commission included more than just those who genuinely need support in order to emphasize the policy’s effectiveness.” An industry insider added, “The secondary financial sector is paying close attention to these details, but it is difficult to strongly voice objections. I believe the Financial Services Commission should have considered the characteristics of the secondary financial sector’s main customers.”

The Financial Services Commission explained that low credit scores inherently indicate weak repayment ability, which is why they were included as support targets. A Commission official said, “Most borrowers with low credit scores have significant delinquencies, but this group also includes borrowers who currently have no delinquencies but have a history of many past delinquencies. Since they have just recently come out of delinquency, their repayment ability could become vulnerable again even if they are not currently delinquent.” Another official added, “We adjusted the low credit score criteria reflecting the voices of savings banks, but we cannot disclose the extent of these adjustments externally.”

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