The Korea Herald

피터빈트

Banks to run pre-debt workouts for potential credit delinquents

By Korea Herald

Published : June 28, 2012 - 19:25

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The nation’s financial watchdog plans to have banks run pre-workout programs to help out potential credit delinquents.

The Financial Supervisory Service announced on Thursday it recently discussed with local bankers in charge of loans running a joint pre-workout program with local banks.

The key is to lower loan rates depending on the debtor’s ability to repay and enable them to pay back the principal through divided payments during a long-term period, FSS officials said.

The plan will focus on creditors who are repeatedly behind on their debt payments for short terms of under a month, and also those with home mortgages and multiple loans who have a high possibility of being arrears.

The FSS’ decision came as household debt rose to 911 trillion won ($800 billion) in March, which increased by 110 trillion won compared to the same period last year. According to KB Financial Group’s Management Research Institute, about 307,000 households are at risk of bankruptcy.

The FSS highlighted KB Kookmin Bank’s program that allowed creditors to repay through long-term installments as a role model for the workout. KB enabled 11,000 creditors to pay back a total debt of 110 billion won through installments over more than 10 years and the delinquency rate marked only 3 to 5 percent.

If the banks run free workout programs it will be a third buffer for debtors following Credit Counseling & Recovery Service’s free workout program for those who are behind payment for one to three months and individual workout program for delinquents of over three months.

The FSS expects that the program will also support the soundness of banks as the burden to prepare provisions will lessen.

“Household debts are increasing, so we do not know when household insolvency will rapidly expand. We have to find out in advance and cope with potential delinquents in order to stop the time bomb,” said a high-level official at FSS.

By Park Min-young (claire@heraldcorp.com)