A man, referred to as A, visited the Korea Financial Services Agency seeking advice on a living expenses loan but was already in default. Given his situation, it would be more appropriate for him to seek debt restructuring through the Credit Recovery Commission rather than applying for a new loan from the agency. However, to receive assistance from the Commission, A would need to make a separate appointment and return days later. This means that vulnerable borrowers like A must navigate between different institutions to address their debt issues.
As the burden of vulnerable borrowers increases, discussions about restructuring financial public institutions are resurfacing. Experts are calling for a reorganization of the consultation, application, and post-management systems among institutions such as the Korea Financial Services Agency, the Credit Recovery Commission, and the Korea Asset Management Corporation (KAMCO), which all play roles in supporting vulnerable borrowers. However, the differing legal statuses, funding structures, and overseeing ministries of these institutions complicate the potential for simple mergers, especially with the added variable of public institutions relocating to regional areas.
According to the financial sector on July 2, the amount of debt that the Korea Financial Services Agency has guaranteed for the Sunshine Loan program has exceeded 1 trillion won for three consecutive years, with figures of 1.5198 trillion won in 2023, 1.4675 trillion won in 2024, and 1.1108 trillion won in 2025. The guarantee rate for the Sunshine Loan 15 program reached 26.8% last year, the highest since its launch in 2019, while the guarantee rate for special guarantees for low-credit borrowers approached 30%.
Demand for debt restructuring is also on the rise. The New Start Fund, jointly operated by KAMCO and the Credit Recovery Commission, reported a cumulative total of 201,176 applicants and a total debt amount of 31.7553 trillion won as of the end of May this year. This marks an increase of over 30,000 applicants and more than 3 trillion won in debt compared to the end of last year. The growing burden of supporting vulnerable borrowers has led to calls for a more streamlined consultation, application, and post-management system.
However, the channels for policy financing remain divided among institutions. The Korea Financial Services Agency is responsible for providing policy loans like the Sunshine Loan, while the Credit Recovery Commission handles debt restructuring after defaults. Although new funding support and post-debt restructuring should be closely linked, the actual consultation and application processes are currently separated.
KAMCO and the Credit Recovery Commission also have overlapping functions in the area of debt restructuring. KAMCO is tasked with the purchase and management of non-performing loans and public debt restructuring, while the Credit Recovery Commission mediates private debt restructuring between financial institutions and borrowers. Within the New Start Fund, KAMCO handles borrowers in distress, while the Credit Recovery Commission manages those at risk of distress.
However, functional reorganization does not necessarily lead to consolidation. While both KAMCO and the Credit Recovery Commission operate within the debt restructuring realm, their functions differ significantly. KAMCO focuses on managing non-performing loans using public funds, whereas the Credit Recovery Commission primarily mediates private negotiations between creditors and borrowers. Simply merging these functions could lead to conflicts of interest between creditors and borrowers.
There is also internal opposition to the idea of merging the Korea Financial Services Agency and the Credit Recovery Commission. The Credit Recovery Commission's union recently argued that rather than simply combining the two institutions, they should maintain their independence and separate representation. Additionally, discussions about the second phase of relocating public institutions have intensified, leading to increased resistance from unions representing national policy banks and financial public institutions.
A financial sector official stated, "While discussions about restructuring public institutions are emerging in various contexts, the differing founding purposes and interests of each institution make simple mergers challenging. It is more realistic to first consolidate the points of contact for consumers, such as consultation, application, and post-management, so that vulnerable borrowers can feel the impact directly."
* This article has been translated by AI.
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