300,000 People to Avoid Becoming Credit Defaulters
By Lee Hyo-sik
Staff Reporter
The government has decided to introduce a temporary ``pre-workout program'' next month to help about 300,000 potential credit defaulters readjust and pay off debts, preventing them from further running their financial status.
The measure is also aimed at helping banks and other financial services firms reduce bad loans and thus improve their financial health. In order to prevent moral hazard among program beneficiaries, the government plans to strictly screen their credit records and assets, and then allow only those who cannot service debt payments on their own to apply to the planned debt-rescheduling program.
The Financial Services Commission (FSC) said Tuesday that it will operate the debt rescheduling scheme on April 13 for one year to stop people with financial troubles from becoming credit delinquents.
People failing to pay loan interest, credit card bills and other financial obligations for less than three months will be eligible for the program. They also have to hold debts of less than 500 million won, with personal assets valued at less than 600 million won.
Those who want to join the rescheduling scheme will be required to undergo rigorous screening by the Credit Counseling & Recovery Service (CCRS).
The CCRS will first talk about terms and conditions with creditors and receive an approval from them before putting individuals with financial problems into the debt workout scheme.
The capital base of the CCRC will increase to 700 billion from the current 500 billion won to meet the growing financial need as it expands the scope of its debt rescheduling programs.
Currently, people defaulting on financial payments, worth over 30 million, for more than three months are listed as credit defaulters and can apply for debt workout programs administered by CCRS, the Korea Asset Management Corp. (KAMCO) and financial services companies. As of the end of 2008, credit delinquents totaled 2.27 million.
With slow income growth and falling asset values amid worsening economic conditions, a growing number of people are on the verge of being blacklisted as credit delinquents as they fail to meet debt payments.
According to the Bank of Korea, the average debt per household hit a record high of 41.28 million won in December last year, up from 38.42 million won per year earlier. The outstanding balance of household debts ― loans for households extended by financial institutions plus credit purchases ― reached 688.2 trillion won, up 57.6 trillion over the same period.