Financial firms that invested in the private nonperforming loan workout company ‘Sangroksu’ announced en masse, immediately after a Kyunghyang Shinmun report flagged the problem of holding long-term delinquent receivables, that they would sell them to the New Leap Fund of Korea Asset Management Corporation (KAMCO). These firms, which had been reluctant to sell receivables, reversed their stance in just one day.

The financial authorities also said they convened all nine Sangroksu shareholders, took immediate steps to sell the long-term delinquent receivables in bulk, and agreed to pursue the sale of receivables not eligible for the New Leap Fund as well.

Shinhan Card said on the 12th, “We have decided to sell to the New Leap Fund all long-term delinquent receivables held by Sangroksu corresponding to the Shinhan Card stake.”

Sangroksu is a private bad bank (debt restructuring entity) jointly funded by major banks and card companies in 2003 during the credit card crisis to help delinquent borrowers make an economic restart. It has faced criticism for charging interest comparable to private lenders and conducting intensive collections, prioritizing the interests of its nine investing institutions over restoring the credit of vulnerable groups. Shinhan Card is the largest shareholder in Sangroksu, with a 30% stake.

A Shinhan Card official said, “We deeply regret not better recognizing earlier the situation of borrowers who have been in economic hardship for more than 20 years,” and added, “We decided to sell all of the receivables, judging that it can no longer be postponed.”

IBK Industrial Bank of Korea·Woori Card·Hana Bank, each holding a 10% stake, as well as KB Kookmin Bank (5.3%) and KB Kookmin Card (4.7%), also successively announced decisions to sell Sangroksu-held delinquent receivables to the New Leap Fund.

At a press briefing that day, IBK Industrial Bank of Korea President Jang Min-young said regarding Sangroksu shares, “We have already implicitly agreed to transfer (sell) them,” and added, “There is no need to hold them, so we will seek to resolve this promptly.”

If Sangroksu long-term delinquent receivables are sold to the New Leap Fund, borrowers will, depending on their circumstances, have their debts restructured and repaid in installments. For those with very limited repayment capacity, such as recipients of basic livelihood benefits, the debts are effectively written off.

The Financial Services Commission convened all Sangroksu shareholder companies that afternoon for an emergency meeting to discuss the long-term delinquent receivable issue. The Financial Services Commission said it also agreed to have Sangroksu wind down other receivables it holds.

With Sangroksu being wound down, about 110,000 long-term delinquent debtors (receivables amounting to 845 billion KRW) gained a chance to make a fresh start.

At a Cabinet meeting that day, Financial Services Commission Chair Lee Eok-won said, “The New Leap Fund operates because there has been a social consensus that simply holding on to debts that have been delinquent for seven years or more only torments ordinary people and that it is desirable to give them a chance to restart,” and added, “We will separately meet and contact Sangroksu shareholders to seek their consent.”

Although regulated financial institutions have all expressed their intent to sell the receivables, for the delinquent receivables to ultimately be transferred to the New Leap Fund, under the articles of association the consent of all shareholders at a Sangroksu general meeting of members is required. If even one of the nine investing institutions opposes, a sale to the fund will be difficult.