The New Leap Fund is a program designed to purchase unsecured loans under 50 million won that have been delinquent for over seven years, supporting debt restructuring or loan cancellation. Its aim is to assist borrowers who are struggling to return to normal financial life due to long-term delinquencies.
As of May 14, there are a total of 2,735 financial institutions holding long-term delinquent loans. Of these, 2,718 have joined the New Leap Fund, while 17 have not. Among the non-participating institutions, 15 are lending companies, and the remaining two are the Korean Scholarship Foundation and the Labor Welfare Corporation. Both agencies recently communicated their intent to join the New Leap Fund to the Financial Services Commission.
The estimated total of long-term delinquent loans held by the two institutions is around 60 billion won. The Korean Scholarship Foundation's long-term delinquent loans exceed 25 billion won and include debts from young borrowers who have failed to repay their student loans on time. The Labor Welfare Corporation's long-term delinquent loans are estimated at about 37 billion won, primarily consisting of policy loans such as worker stabilization funds.
These loans are significant as they differ from typical financial institution loans, being policy-related loans like student loans and worker stabilization funds. A high proportion of long-term delinquents in student loans are young individuals, while the Labor Welfare Corporation's loans are mainly used by low-wage workers in need of living expenses. Despite aligning with the New Leap Fund's goal of supporting vulnerable borrowers, these institutions had previously been excluded from the program.
Notably, long-term delinquents on student loans can utilize the existing debt restructuring system of the Credit Recovery Commission, but the benefits are more limited compared to the New Leap Fund. The maximum principal reduction rate under the Credit Recovery Commission is around 70%, while the New Leap Fund allows for reductions of up to 80%. The delay in the Korean Scholarship Foundation's inclusion in the New Leap Fund has meant that long-term student loan delinquents have not been able to access relatively favorable debt restructuring benefits.
The delay in joining the fund has been attributed to legal grounds and internal procedural issues rather than a lack of willingness to participate. Public institutions manage loan claims according to relevant laws, so selling claims to the Korea Asset Management Corporation requires separate legal grounds and decision-making processes. The Korean Scholarship Foundation lacks clear legal grounds under current law to sell student loan claims to KAMCO, necessitating legal adjustments. The Labor Welfare Corporation has also been reviewing the feasibility and procedures for selling policy loan claims.
The atmosphere has changed following the Sangnoksoo SPC controversy. Concerns were raised that Sangnoksoo SPC had not transferred long-term delinquent loans incurred during the card crisis to the New Leap Fund, prompting the Financial Services Commission to strengthen its review of institutions holding long-term delinquent loans. KB Kookmin Bank's long-term personal credit delinquent loans, which were transferred to KB Star Asset Securitization Company, are also set to be sold to the New Leap Fund.
A financial industry official stated, "The intention of the two institutions to join the fund is significant in reducing the blind spots of the New Leap Fund. However, for the actual sale of claims and debt restructuring to proceed after the agreement is signed, legal adjustments and institutional procedures must be expedited."
* This article has been translated by AI.
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