Documents obtained from the Cabinet meeting on May 11 reveal that the five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—saw their internal debt adjustments rise from 989 cases in the first quarter of 2025 to 3,456 cases by the fourth quarter of the same year, a 3.5-fold increase. In contrast, the sale of delinquent loans plummeted from 35,000 cases in 2025 to just 11 in the first quarter of 2026. The Financial Services Commission views this as a transition from a "maximizing recovery" approach to one focused on "recovery and coexistence."
Traditionally, the financial sector has relied on selling long-term delinquent loans to external collection agencies. While this allowed financial institutions to remove bad debts from their books, it often left borrowers facing prolonged collection efforts.
The management of delinquent loans by banks is evolving. The five major banks have increased their efforts to write off old debts that are difficult to collect. Their performance in terms of debt expiration and write-offs rose from an average of 2,229 cases and 59.8 billion won over the past three years to 7,676 cases and 288.2 billion won in the first quarter of this year. This represents more than a threefold increase in the number of cases and nearly a fivefold increase in the amount, indicating a stronger trend toward internal adjustments rather than transferring delinquent loans externally or leaving them in prolonged collection.
During the Cabinet meeting on May 6, President Lee remarked on the report from Financial Services Commission Chairman Lee Ok-won, stating, "The Financial Services Commission is achieving remarkable results. They are doing very well." He emphasized the need for a structural shift in finance, noting that the previous mindset of squeezing every last penny from borrowers was not acceptable.
The effects of removing delinquency records are also becoming evident. Approximately 2.928 million individuals who repaid their delinquencies have received credit relief, with 154,000 of them resuming normal financial transactions, such as obtaining new loans or credit cards.
Efforts to address old debts are also underway. Financial authorities are working on plans to forgive or write off long-term delinquent loans, specifically targeting 1.13 million individuals with debts under 50 million won that have been overdue for more than seven years, totaling 16.4 trillion won. This initiative aims to reintegrate borrowers who have been excluded from the financial system due to prolonged delinquency.
The Financial Services Commission plans to institutionalize these improvements in delinquent loan management to ensure they are not one-time measures. Starting in the second quarter, it will disclose delinquent loan management performance across all sectors and establish incentive systems, including differential fees. This aligns with President Lee's comments regarding the potential for incentives and penalties through evaluations and management guidelines for financial institutions.
* This article has been translated by AI.
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