Financial Services Commission to Grant Nongshinbo the Right to Request Tax Information (Comprehensive)

Decrease in Basic Assets Due to Increase in Subrogation Amount
"Active Use of Recourse Rights Needed to Secure Funds"

[Asia Economy Reporter Kim Hyo-jin] Financial authorities have decided to grant the Korea Credit Guarantee Fund for Agriculture, Forestry and Fisheries (Nongshinbo) the right to request debtor tax information. The purpose is to improve the worsening financial situation by actively pursuing subrogation claims based on tax information.

According to financial authorities on the 17th, the Financial Services Commission recently announced the 'Partial Amendment to the Act on Credit Guarantee for Agriculture, Forestry and Fisheries' containing this provision for public comment. The amendment allows Nongshinbo to request tax information about debtors from the relevant tax offices or local governments.

The FSC explained the background of the amendment, saying, "Due to the rapid increase in subrogation payments for debts guaranteed by Nongshinbo, the basic assets of Nongshinbo are decreasing. By granting the right to request tax information on debtors, we aim to secure stable funding for the fund by facilitating the exercise of subrogation claims."

Subrogation is a procedure where the guarantor repays the debt if the debtor fails to do so. In this case, the guarantor acquires a subrogation claim against the debtor.

Nongshinbo is a fund established to guarantee credit for farmers, fishermen, and foresters who have weak collateral when borrowing funds. Unlike the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation, which have separate independent operating bodies, Nongshinbo is operated by the National Agricultural Cooperative Federation (Nonghyup Central Association).

A Financial Services Commission official said, "While the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation have the right to request tax information, Nongshinbo does not. Considering the continuous deterioration of Nongshinbo's financial condition over the past few years, we decided to pursue this amendment."

The scale of subrogation payments by Nongshinbo, which was 154.4 billion KRW in 2015, sharply increased to 147.3 billion KRW in 2016, 209.2 billion KRW in 2017, 277.6 billion KRW in 2018, and 326.5 billion KRW last year.

Conversely, surplus funds shrank from 1.4032 trillion KRW in 2015 to 1.2117 trillion KRW in 2016, 979.2 billion KRW in 2017, 758.1 billion KRW in 2018, and 485 billion KRW last year. New guarantees last year amounted to 8.6112 trillion KRW, and the cumulative guarantee balance until last year was 16.1117 trillion KRW.

Surplus Funds Shrink to 485 Billion KRW
Board of Audit Points Out 'Poor Guarantees'

As the guarantee balance increased while the fund decreased, the operating multiple (guarantee balance to fund balance) as of the end of May reached 17.4 times, far exceeding the appropriate multiple of 12.5 times. The government barely overcame the crisis by deciding to inject an additional 100 billion KRW in the supplementary budget in June.

Concerns over the operation of Nongshinbo's fund are not new. In October last year, the Board of Audit and Inspection announced the results of an audit on Nongshinbo's guarantee operations, pointing out that unlike other guarantee institutions that comprehensively review financial status and debt repayment ability, Nongshinbo lacks comprehensive guarantee screening standards.

It was even revealed that Nongshinbo provided guarantees to insolvent corporations as long as the debt size was within 600% of equity capital. In contrast, the Korea Credit Guarantee Fund only guarantees if the debt size is within 400% of equity capital.

The Board of Audit and Inspection notified the National Agricultural Cooperative Federation to strengthen guarantee screening standards for corporations and individual business owners and urged the Financial Services Commission to strengthen guidance and supervision over Nongshinbo's fund management.