▲ Financial Services Commission
As the practice of public financial institutions holding delinquent debts has emerged as a blind spot in supporting debtors' rehabilitation, financial authorities are moving to overhaul the system.
This expands the scope of delinquent debt management, which had previously been focused on private financial companies, to the public sector. Authorities are speeding up efforts with the goal of drawing up measures within this month.
According to financial authorities and the financial sector on June 14, the Financial Services Commission (FSC) has recently conducted a comprehensive survey on delinquent debts held by public institutions and is discussing ways to improve the system.
On June 9, the FSC held a meeting presided over by its secretary-general on measures to manage delinquent debts held by public institutions.
Seven related institutions, including the Korea Asset Management Corporation (KAMCO), the Korea Housing Finance Corporation (HF), the Korea Deposit Insurance Corporation (KDIC), the Korea Technology Finance Corporation (KIBO), the Korea Credit Guarantee Fund (KODIT), the Credit Guarantee Fund for Agriculture, Forestry and Fisheries (CGFAF), and the Korea Inclusive Finance Agency (KINFA), reportedly attended the meeting.
The meeting was convened to assess the current status of delinquent debts and discuss countermeasures amid growing controversy that public institutions are increasing the burden on debtors by failing to resolve delinquent debts in a timely manner.
With the issue of excessive long-term debt collection, which President Lee Jae-myung targeted as "predatory finance," rising to the surface, critics have pointed out that the long-term debt issues of public institutions are out of step with the current administration's inclusive finance policy.
An official from the financial authority said, "Our goal is to change the system so that debtors can quickly return to their daily lives and prevent long-term delinquencies. This meeting served as a starting point to discuss the broad framework of what we need to do going forward."
Although the authorities announced measures to manage bad debts of public financial institutions in 2017—such as reorganizing write-off standards and consolidating the management of written-off bonds under KAMCO—statistics confirm that implementation on the ground has been insufficient.
According to the National Assembly Budget Office, the volume of personal financial bad debts held by 12 major public institutions, including KAMCO, KODIT, and KIBO, surged by more than 16 trillion won, from 28.0114 trillion won in 2018 to approximately 44.4478 trillion won in 2025.
On the other hand, the proportion of written-off debts due to no possibility of recovery decreased from 23.3% to 16.6%.
The share of debt adjusted independently by public institutions also fell from 45.7% to 34.6%.
The Budget Office evaluated, "It can be seen that public institutions are continuing the practice of formally holding bad debts rather than actively adjusting or resolving personal financial bad debts."
The authorities are expected to re-examine the status of debt management by each institution, analyze why past system improvements did not work properly, and consider more effective measures.
A financial authority official explained, "We need to do more work to create an environment where delinquent debts can be smoothly resolved by consolidating delinquent debt management under KAMCO and aligning the different write-off standards of each institution. We need to discuss to what extent we should reform the system to prevent delinquent debts from piling up."
However, a financial sector official said, "Since internal regulations differ for each public institution, there is not even a guideline established on what kind of debt should be defined as 'long-term delinquent.' The process of coordinating standards for each institution could take more time to assess the current situation."
The Financial Services Commission plans to prepare measures within this month.
The financial authorities have recently announced a series of system improvement measures targeting private financial companies.
They have revised regulations to transition the debt collection business from the current registration system to a licensing system, significantly strengthening entry requirements. They also adjusted rules so that financial companies can receive tax benefits on written-off personal unsecured delinquent debts on the condition that the statute of limitations is completed when it first expires.
Meanwhile, KAMCO announced its policy to normally collect 2.6 trillion won (for 244,000 people) out of its 8.9 trillion won in held debts (for 455,000 people) and phase out the remaining 6.3 trillion won depending on the delinquency period.
Delinquent debts of 1.4 trillion won that have been overdue for 20 years or more will be resolved within this year, while the remaining 4.9 trillion won will undergo debt forgiveness or debt adjustment sequentially based on the debtors' repayment capabilities.
However, a KAMCO official lamented that restrictions on authority to access information for repayment screening hinder prompt processing, saying, "There is a limit to the information we can receive regarding repayment screening, so there are too many debts for which we cannot determine whether they are eligible for write-off."
※ Please note: This article was translated by AI and may contain errors.