Full-scale Debt Relief for Long-term Delinquents
Support Measures for Diligent Borrowers Also Introduced
The government will begin a full-scale debt relief program for low-income individuals or small business owners who have been in long-term arrears for more than seven years on debts of 50 million won or less.
The government has also addressed concerns about fairness for diligent borrowers who have continued to repay their debts even in difficult circumstances. It explained that it has prepared support measures for diligent borrowers, such as interest reductions and extensions of maturity dates.
On July 4, the Financial Services Commission announced that the National Assembly plenary session had passed and finalized a total of three projects under the commission’s jurisdiction for the second supplementary budget, amounting to 1.1 trillion won.
Of the total budget, 400 billion won will be allocated to the long-term delinquent debt write-off program (bad bank), which will purchase in bulk and extinguish, or otherwise ease the repayment burden of, long-term delinquent debts that have been overdue for more than seven years and are 50 million won or less.
The government explained that this policy was introduced because special measures are needed for small business owners and vulnerable groups who have lost the opportunity to improve their repayment ability due to factors such as COVID-19. It emphasized that, with the ongoing economic downturn, delinquency rates among the self-employed have risen sharply, and the prolonged duration of arrears has led to a significant increase in defaults, making countermeasures necessary.
President Lee Jaemyung also stressed in his supplementary budget address, "Even in the same economic crisis, the weight of suffering is not equal," and emphasized, "Special measures are needed for small business owners, self-employed individuals, and vulnerable groups who have suffered severe hardship from the COVID-19 crisis to the illegal 12·3 martial law."
The government plans to spend a total of 800 billion won on this delinquent debt write-off, combining 400 billion won from the supplementary budget and 400 billion won in support from the financial sector.
Taking fairness with diligent borrowers into account, the government stated that debts of 50 million won or less that have been in arrears for more than seven years will only be extinguished after a strict review of income and assets confirms that repayment is truly impossible.
For diligent borrowers, the government also plans to reduce interest, extend maturity dates, or provide low-interest funds. For those who have not lost their repayment ability but are burdened by debt repayment, the government explained that it has established a comprehensive system to allow for debt restructuring through the Saechulbalgi Fund or the Credit Counseling and Recovery Service.
The remaining 700 billion won of the supplementary budget will be used for a debt restructuring program for small business owners and self-employed individuals, which expands the scope of support for the Saechulbalgi Fund and strengthens assistance for low-income borrowers.
With this program, the eligibility period will be extended from the current April 2020 to November 2024 to include those operating businesses from April 2020 to June 2025. For low-income borrowers with total debt of 100 million won or less, the principal reduction rate will increase (from the current maximum of 80% to 90%), and the repayment period will be extended (from the current maximum of 10 years to 20 years).
Finally, 350 million won will be allocated to support the uninterrupted appointment of debtor representatives for victims of illegal private lending.
A Financial Services Commission official emphasized, "Taking into account the difficult economic conditions facing people's livelihoods, we will implement the supplementary budget as quickly and efficiently as possible, while carefully managing the process so that the effects of these policies can be felt in the daily lives of ordinary citizens and small business owners."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
