"Loans Bought at 20% Can't Be Sold at 5%"... FSC Convenes Private Lenders as New Leap Fund Faces 'Half-Baked' Crisis

Private Lenders Hold 30% of Eligible Loans, but Only Half Participate
FSC to Convene Private Lenders on the 19th to Encourage Participation
Dispute Over 5% Purchase Price... Expanding Incentives and Considering a Licensing System

As President Lee Jaemyung strongly criticized the issue of long-term delinquent debt collection by the private bad bank "Sangnoksoo," calling it "predatory finance," financial authorities are convening the private lending industry to discuss measures for resolving delinquent debts. As participation from the private lending sector in the New Leap Fund has stalled due to disagreements over debt purchase prices, attention is focused on whether this discussion can break the deadlock in addressing the long-term delinquent debt issue.

At the launch ceremony of the New Leap Fund held last October at the Press Center in Jung-gu, Seoul, Eunwook Lee, Chairman of the Financial Services Commission (fourth from right), and other attendees are holding the plaque ceremony. 2025.10.01 Photo by Dongju Yoon

"We Must Prevent a Half-Baked Bad Bank"... Financial Services Commission to Meet with Private Lenders

According to financial authorities on May 17, the Financial Services Commission plans to convene the private lending sector on May 19, with the Director General of the Financial Consumer Bureau presiding, to discuss expanding participation in the New Leap Fund and strategies for selling long-term delinquent debts. Korea Asset Management Corporation (KAMCO) and the Financial Supervisory Service will also attend the meeting.

A financial authority official explained, "The final stage of resolving long-term delinquent debts through the New Leap Fund involves the private lending sector," adding, "This meeting is intended to hear the challenges faced by the industry and seek practical alternatives."

The New Leap Fund, launched in October last year, is a type of bad bank that purchases long-term delinquent debts held by financial institutions, then either writes them off or restructures the debts. The fund targets debts with a delinquency period of at least seven years and principal amounts of 50 million won or less.

While most sectors, including banks, have joined the New Leap Fund, participation from the private lending sector remains low. Out of the top 30 private lending companies, only 15 have joined the New Leap Fund. According to the Financial Services Commission, the total value of eligible debts held by the private lending sector is approximately 4.9 trillion won, accounting for about 30% of the total target debts (16.4 trillion won). This has led to concerns that without participation from the private lending sector, the New Leap Fund would essentially be a "half-baked bad bank."

"We Bought Debts at 20%—Can't Sell for 5%"... Private Lenders Push Back

The private lending sector's reluctance stems from KAMCO's proposed purchase price for the debts. Industry players have typically purchased non-performing loans from financial institutions at an average price in the 20% range, but claim KAMCO is offering a purchase price of only about 5%. The industry argues that selling debts at this price would inevitably result in losses and potentially undermine their business foundations. As of 2024, the average purchase price ratio for non-performing loans in the private lending sector is 29.9%.

An industry representative stated, "If we bought debts at prices in the 20% range but are told to sell them at around 5%, it means we're being asked to absorb all the losses. Adjustments to purchase prices or policy incentives are needed, but the government is not sufficiently accommodating the industry's position."

Financial authorities also acknowledge to some extent the practical difficulties faced by the industry. However, they argue that the debts targeted by the New Leap Fund are long-term, unsecured, and with low recoverability, making direct comparisons with general non-performing loans inappropriate.

A financial authority official explained, "The 29.9% average purchase price for non-performing loans cited by the private lending sector includes secured debts, rehabilitation debts, and debts under credit recovery programs. For the unsecured, long-term delinquent debts targeted by the New Leap Fund, even for those delinquent for just one to two years, the actual purchase price is around 13%, and the price drops further as the delinquency period lengthens." He added, "From the industry's perspective, a blanket sale at 5% could be a matter of survival, so we are seeking a realistic compromise."

A flyer related to private loans is placed at a closed store in Myeongdong, Seoul. Photo by Jin-Hyung Kang aymsdream@

Financial Services Commission to Consider Adjusting Purchase Prices and Expanding Incentives... Also Promoting Conversion to a Licensing System

The Financial Services Commission is expected to broadly discuss options such as adjusting debt purchase prices, expanding incentives, and selectively purchasing debts during the meeting with the private lending sector. However, the existence of established price benchmarks and concerns over fairness with existing participating companies pose obstacles to adjusting purchase prices.

Plans to expand incentives to encourage participation from the private lending sector are also underway. Since the outbreak of COVID-19 in 2020, the government has restricted private lenders from purchasing individual delinquent debts, but this restriction will be lifted for companies joining the New Leap Fund agreement. Additionally, the system recognizing "outstanding private lenders," previously limited to money-lending businesses, will be expanded to include debt purchase and collection companies, thereby opening up access to bank loans for these entities.

The Financial Services Commission plans to hold an "Inclusive Financial Transformation Meeting" as early as the end of this month to announce such incentive expansion measures, as well as introduce a plan to switch to a licensing system for debt purchase and collection companies.

However, some in the industry express concern that the move to a licensing system could effectively serve as a means of pressuring participation in the New Leap Fund. Currently, the debt purchase and collection industry operates under a registration system with renewal reviews every three years. If converted to a licensing system, regulatory supervision by authorities would be significantly strengthened.

An industry representative stated, "Within the industry, the shift to a licensing system is being perceived as a form of pressure—implying that licenses will not be granted to those who do not participate in the New Leap Fund. As this is a matter of survival for the industry, effective operational incentives and supplementary measures should be prepared, rather than simply pressuring participation."

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