Financial regulators moved to widen the range of delinquent loans eligible for purchase by the New Leap Fund on the view that borrowers who tried to repay should not be penalized under policy support programs. But the financial industry has voiced considerable concern as the scope of debt forgiveness keeps expanding. Giving a fresh start to vulnerable borrowers who lost their ability to repay and fell into default is necessary, industry officials say, but repeated government-led restructuring programs risk spreading the perception that holding out will get debts written down, undermining credit discipline.
The New Leap Fund plans to revise its agreement with financial companies and related institutions to include delinquent loans with a record of prior restructuring, provided the first missed payment came before June 19, 2018, according to financial industry sources on the 9th. Borrowers holding loans that went delinquent before June 19, 2018 and whose earlier debt restructuring lapsed before the policy was announced on June 19, 2025 are expected to be newly covered.
The fund intends to set purchase criteria for delinquent loans that reflect borrower characteristics and private-market transaction terms. It plans to sort borrowers into eight grades based on willingness to repay, age and outstanding loan balance, and to calculate purchase prices that also factor in how much time has passed since the earlier restructuring lapsed.
The expansion is also expected to lengthen the fund's loan purchase period. The Financial Services Commission and the Korea Asset Management Corporation had originally planned to complete purchases by the end of October this year. With the eligible pool widened, they now need more time to negotiate with lenders and to execute transactions for the additional loans. The length of the extension and the schedule for further purchases are expected to be decided as the agreement is revised.
Industry officials say including borrowers with a prior restructuring record means the fund has lost a chance to conserve resources. In the second half of last year, regulators estimated the fund would buy 16.4 trillion won worth of loans covering 1.134 million people. That estimate is understood to have broadly included loans that were more than seven years delinquent at the time.
Regulators argue that a structure penalizing people who tried to repay must be fixed. But concerns are mounting over the steady expansion of government-led restructuring. The Lee Jae-myung administration announced the creation of the New Leap Fund on June 19 last year, and 14 months later, on the 28th of last month, said it would launch a separate program to restructure loans held by small merchants hit by COVID-19 that have been delinquent for three years or more. With the fund's eligibility now widened further, the reach of government-led debt restructuring keeps growing.
The financial sector is most worried about damage to the credit system. Government-led restructuring and large-scale fund purchases recur with each new administration or economic crisis, which can create expectations that further programs will keep coming. In particular, some say borrowers may come to take it for granted that they can receive restructuring again even after a previous round. That weakens borrowers' willingness to repay and could spill over into questions of fairness toward those who completed their restructuring payments or serviced their debts in full, industry officials said.
Experts agree that even policies easing debt burdens must strike a balance between protecting creditors and maintaining credit discipline. Through July this year, the New Leap Fund completed purchases of 11.74 trillion won in long-term delinquent loans held by 957,000 people. The number of beneficiaries has grown to approach 1 million.
That is not all. The government is also running debt restructuring through the New Start Fund. It plans to forgive up to about 6 trillion won in loans to self-employed business owners taken out during the pandemic.
Some also warn that overly lenient discharge of repayment obligations through restructuring could curb credit supply from financial companies. Kim Jung-sik, professor emeritus of economics at Yonsei University, said a system that prevents an increase in defaulters is welcome at a time when domestic demand is weak, but expressed concern that a perception may spread that debts need not be repaid. "This is a time when we need institutional mechanisms that differentiate according to the nature of the debt each borrower holds," Kim said.
