Savings Bank Individual Business Owner Delinquent Loans to Be Allowed for Private Sale

Acquisition Institutions Limited to KAMCO and Specialized Non-Performing Loan Investment Companies

From now on, savings banks will be able to sell delinquent loans of individual business owners to institutions other than the New Start Fund with the borrower's consent in order to manage soundness.

On the 24th, the Financial Services Commission announced the "Improvement Plan for Managing Delinquent Loans of Savings Banks," which includes this content. To this end, the FSC has been operating a related task force (TF) with relevant organizations, including the Financial Supervisory Service, since November last year.

The authorities prepared this improvement plan because the soundness of savings banks is rapidly deteriorating due to prolonged high interest rates and economic recession, while the repayment burden on individual business borrowers is also increasing. The delinquency rate of the savings bank sector soared to 6.15% as of the end of September last year.

Accordingly, from February, savings banks and other credit financial institutions will be able to sell delinquent loans of individual business owners to institutions other than the New Start Fund. However, to prevent excessive collection efforts from burdening borrowers, institutions that can purchase delinquent loans of individual business owners will be limited to Korea Asset Management Corporation (KAMCO) or specialized non-performing loan investment companies that meet certain requirements.

Also, when selling delinquent loans of individual business owners, financial institutions such as savings banks must comply with "procedures and contract conditions for borrower protection" to ensure that borrowers do not lose opportunities for debt adjustment. This includes notifying the borrower before selling the delinquent loan and stating that the delinquent loan can be sold to either the New Start Fund or other institutions according to the borrower's intention.

Improvement measures to induce active debt restructuring for vulnerable borrowers in the savings bank sector were also presented. Currently, in the savings bank sector, non-performing loans overdue for more than three months are considered workout targets, and loans overdue for less than three months are considered pre-workout targets. However, there are no clear standards for vulnerable borrowers before delinquency occurs. Since savings banks must set aside loan loss provisions when downgrading soundness classifications, these conservative classification standards were judged by the authorities to hinder the activation of debt restructuring.

To improve this, the authorities plan to provide guidelines on soundness classification standards at the start of pre-support for vulnerable borrowers in February. Accordingly, if pre-support programs such as maturity extensions do not significantly affect the value decline of the target loans, savings banks do not have to downgrade the soundness classification solely because a debt adjustment program has been initiated.

Regulatory flexibility to promote the sale and transfer of non-performing loans of savings banks will also be pursued. Accordingly, the authorities plan not to sanction savings banks if they temporarily fall below the credit provision obligation ratio within their business area by about 5 percentage points during active management of delinquent loans. To this end, the Financial Supervisory Service will provide a non-action letter valid for one year next month.

The Korea Inclusive Finance Agency will also support delinquency rate management. The agency plans to promptly execute subrogation payments for unpaid amounts of savings bank borrowers under the Sunshine Loan program to prevent an increase in the delinquency rate of savings banks due to delays.

The authorities plan to complete the necessary measures by early next month so that these institutional improvement tasks can be implemented within the month. The Korea Federation of Savings Banks also plans to form and operate a savings bank delinquency rate management consultative body and prepare delinquency rate management measures for the sector within this month.

A financial authority official said, "Through the activation of delinquent loan resolution in savings banks, we expect not only an improvement in the soundness of savings banks but also an expansion of the capacity to supply new loans to low-income borrowers in the future," adding, "We will check whether these measures operate smoothly on the ground through the TF and additionally identify necessary institutional improvements related to delinquent loan resolution in the financial sector."

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