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Korea to write off bad debt for 1.59 million people

South Korea's financial authority on Wednesday announced that it will forgive up to 6.2 trillion won ($5.7 billion) worth of bad debt, in the latest measure to help hard-pressed people who cannot pay back their debts.

The move, which will affect 1.59 million debtors, is aimed at reducing the nation's nonperforming consumer loans, as the Bank of Korea is expected to raise its key interest rate in the coming months.

Starting in February, the government will receive applications for write-offs from people who have no assets and have failed to repay debt of less than 10 million won over the past decade.


In a statement, the Financial Services Commission said the write-off scheme will target people who earn 990,000 won or less per month.

The government's fund for helping troubled debtors, called the "People's Happiness Fund," had already bought 3.6 trillion won worth of debt from the financially strained and those debts will be forgiven, the FSC said.

Private financial institutions and lenders have 2.6 trillion won worth of nonperforming loans taken out by such debtors, it said, adding that the government will raise funds from the private sectorto write off those loans.

Choi Jong-ku, chairman of the FSC, told reporters that the government will move to forgive the debt, while minimizing risks of moral hazard.

"This measure will be implemented with emphasis on preventing moral hazard," Choi said.

Choi said financial firms have a "responsibility" for extending risky loans to desperate debtors, although debtors have the primary responsibility for their overdue debt.

If some people apply for the write-off scheme by hiding their assets or using other irregularities, the government will sternly punish them, Choi said.

The delinquency rate of loans extended to households rose 0.02 percentage point on month to 0.28 percent at the end of August, according to official data. (Yonhap)