Rhyme Asset Management's 'Bad Bank' Faces Disagreements Among Sellers... Establishment Likely to Be Delayed

[Asia Economy Reporter Park Ji-hwan] The establishment of a 'bad bank' to handle Lime Asset Management's redemption suspension funds worth 1.7 trillion KRW, managed by Lime fund distributors, is facing difficulties from the start. Some fund distributors are reluctant to participate, citing the lack of concrete plans regarding contribution ratios or amounts.

According to the financial investment industry on the 23rd, among the 19 Lime fund distributors including banks and securities firms, some companies submitted statements to the Financial Supervisory Service (FSS) yesterday expressing that they are 'under review' or 'still difficult to submit opinions' regarding participation in the bad bank. The FSS held a meeting with Lime distributors on the 20th to discuss the necessity and direction of establishing a 'new consultative body for Lime fund transfer.' Although there were plans to concretize the establishment discussions as early as this week, delays in responses from distributors have inevitably postponed the schedule.

The difference in distributors' positions on participating in the bad bank appears to largely depend on the scale of fund sales. It is known that six companies, including Shinhan Financial Investment and Shinhan Bank, which sold a large amount of Lime funds, have gathered opinions in favor of participation. On the other hand, most of the distributors who have not yet reached a conclusion on participation are those with relatively smaller sales amounts.

A securities firm official said, "Specific contribution amounts, scale, and duration have not yet been presented to the distributors," adding, "For those with small sales amounts, there may be unexpected contribution burdens, so it is difficult to decide on participation without guidelines related to the bad bank establishment."

Given this situation, financial authorities have decided to partially revise their original plan to proceed with discussions on contribution ratios, amounts, and fund transfer scope for each company after confirming participating companies. An FSS official stated, "After receiving participation intentions from distributors, many requested that specific conditions such as contribution amounts be presented," and added, "We plan to organize and deliver these matters to the distributors soon."

Among some distributors, concerns have been raised that even if the bad bank is established, it may be difficult to increase the recovery rate of Lime funds, and it could be perceived by investors as a 'time-buying' measure. A financial investment industry official explained, "If the bad bank is established, all voices from investors claiming distributor responsibility evasion or compensation delays may be focused there," adding, "While distributors with large sales amounts may be less concerned, those with relatively small sales amounts may find participation itself burdensome."

A bad bank is a financial institution temporarily operated to handle distressed assets of financial companies. It recovers funds by issuing securities backed by various collaterals held by the distressed financial company or by selling the collateral. As of the end of last year, Lime Asset Management's redemption suspension funds consist of 4 mother funds and 173 sub-funds, with the suspension amount reaching 1.6679 trillion KRW. Woori Bank (357.7 billion KRW), Shinhan Financial Investment (324.8 billion KRW), and Shinhan Bank (276.9 billion KRW) account for 64% of the total sales amount.