The Financial Services Commission is considering a plan to apply incentives based on the bond sales performance of loan companies participating in the New Leap Fund, which aims to purchase and manage long-term delinquent bonds for vulnerable groups. This review comes as some loan companies have only transferred a portion of their bonds to the fund while seeking benefits such as the purchase of new delinquent bonds or funding from banks, leading to concerns that the current structure may not encourage further sales.
According to financial sector sources on July 22, the Financial Services Commission is re-evaluating the current support system to link the participation performance of loan companies in the New Leap Fund with incentives.
Initially, the commission envisioned a structure where the government would provide benefits such as the purchase of new delinquent bonds or bank funding if loan companies sufficiently sold bonds eligible for the New Leap Fund. However, it has been found that many companies that joined the agreement have only sold a fraction of their holdings.
Currently, 15 loan companies have joined the New Leap Fund agreement, selling approximately 400 billion won worth of long-term delinquent bonds that have been overdue for more than seven years. Considering that around 30 loan companies hold related bonds totaling about 4 trillion to 5 trillion won, the actual sales performance in the loan industry appears limited.
The financial authorities believe that the current method of providing the same benefits to participating companies based solely on their agreement status will not effectively encourage substantial bond sales.
The Financial Services Commission is expected to explore options to reflect actual bond sales amounts or the sales ratio compared to the bonds held in the criteria for applying incentives. They will reassess whether it is appropriate to offer the same benefits to companies that have only transferred a portion of their holdings compared to those that have sold a significant amount. However, the specific calculation methods and the extent of differential benefits have yet to be determined.
Additionally, the key incentive of bank funding support has not been functioning effectively. There have been no instances of converting existing collateral loans from participating loan companies into bank loans or banks handling new loans to date.
Since banks independently assess the creditworthiness and collateral value of loan companies, it is challenging for financial authorities to mandate loan processing. Currently, the main benefit that participating loan companies are effectively utilizing is the allowance for purchasing new delinquent bonds.
Loan industry representatives argue that the failure of promised incentives to function properly is a reason for the lack of participation. A representative stated, "When bonds are sold to the New Leap Fund, companies must absorb the loss equivalent to the difference between the book value and the actual sale price. Without benefits such as bank borrowing to offset this, there is little incentive to sell additional bonds."
Expanding participation from the loan industry is considered a key task for the New Leap Fund. Recently, the Financial Services Commission and the Korea Asset Management Corporation completed negotiations to purchase long-term delinquent bonds worth 1.0314 trillion won held by liquidity companies such as Sangnoksoo and K-Bista. In contrast, the loan industry, estimated to hold about 30% of all long-term delinquent bonds, has been slow to progress in bond resolution.
* This article has been translated by AI.
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