[2021 National Audit] "Shinbo Cash Deposit Opportunity Cost 1 Billion KRW per Year... Fund Must Be Managed Efficiently"

Yoon Kwan-seok, Democratic Party of Korea lawmaker

[Asia Economy Reporter Song Seung-seop] It has been identified that the annual opportunity cost due to cash deposits by the Korea Credit Guarantee Fund reaches 1 billion KRW. There are calls for institutional improvements to ensure the fund is managed efficiently.

According to data titled ‘Status of Bond Preservation Applications and Cash Deposits of the Fund in the Last 3 Years’ submitted by the Korea Credit Guarantee Fund to Yoon Kwan-seok, a member of the National Assembly’s Political Affairs Committee from the Democratic Party of Korea, out of a total of 18,179 bond preservation applications, 31.8% (5,783 cases) involved cash deposits.

A deposit refers to entrusting money or securities to a third party (deposit office). The Korea Credit Guarantee Fund typically guarantees debt credit for small and medium-sized enterprises with insufficient collateral capacity. In the process of recovering non-performing loans from guaranteed companies, the Fund applies to the court for bond preservation. At this time, the court orders cash deposits to prevent excessive bond preservation measures by the Fund and to promptly compensate debtors for unexpected damages.

The balance of cash deposits has decreased annually from 54.3 billion KRW in 2018 to 47.8 billion KRW in 2019 and 39.2 billion KRW in 2020, but approximately 40 billion KRW is still tied up in the court.

Assemblyman Yoon Kwan-seok pointed out, “The opportunity cost caused by cash deposits is at the level of 1 billion KRW annually,” adding, “If it had been used as guarantee funds, considering a guarantee multiple of 12 times, additional guarantees worth 12 billion KRW would have been possible.”

He also urged, “Efforts to minimize lawsuits against debtors without repayment ability are necessary,” and “Institutional improvements should be made so that the fund can be managed efficiently, such as replacing cash deposits with guarantee insurance certificates.”