SEOUL, Nov. 29 (Korea Bizwire) — South Korea’s financial authority on Wednesday announced that it will forgive up to 6.2 trillion won (US$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 some 1.59 million debtors, is aimed at reducing the nation’s nonperforming consumer loans as the Bank of Korea (BOK) 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 failed to repay debt of less than 10 million won over the past decade.
In a statement, the Financial Services Commission (FSC) 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 “People’s Happiness Fund,” had already bought 3.6 trillion won worth of debt from the financially strained that 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.
To write off 2.6 trillion won worth of loans, the government will raise funds from the private sector, the financial regulator said.
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 to prevent moral hazard,” Choi said.