KAMCO to transfer KRW 1.8 Trillion in Long-Term Delinquent Loans to New Leap Fund, Faces Scrutiny Over Potential “Moral Hazard”
Busan, South Korea – October 23, 2023 – Korea Asset Management Corporation (KAMCO) CEO Jeong Jeong-hoon announced today the company plans to transfer KRW 1.77 trillion in long-term delinquent bonds acquired during the 1997 IMF crisis to the New Leap Fund, beginning this month. The announcement came during a National Assembly Political affairs Committee audit at the Busan International Financial Center (BIFC).
The New Leap Fund purchases long-term delinquent bonds – those outstanding for over seven years and under KRW 50 million – and offers debt forgiveness or installment repayment plans based on the debtor’s ability to pay. Speculative, entertainment, and foreign bonds are excluded from eligibility.
The move has already drawn criticism from lawmakers regarding potential moral hazard and equity concerns, with questions raised about the inclusion of perhaps irresponsible debt funded by public money.
Democratic Party lawmaker Park Chan-dae initiated the questioning, asking if the IMF-era bonds could be adjusted to the new Leap Fund. President Jeong responded, “Of course it is indeed possible. We plan to sell bonds to the New Leap Fund for the first time this month, and for the first time, we plan to sell bonds to KAMCO and the National Happiness fund.”
Further scrutiny focused on the difficulty of classifying individual debts within the bulk purchases made by the New Leap Fund. People Power Party lawmaker Kim Sang-hoon pointed out, “Because we purchase non-performing loans in bulk from financial institutions, we no that it is impossible to distinguish whether an individual’s debt is a gambling debt or a gambling debt.”
President Jeong acknowledged the challenge, stating, “As you pointed out, it is impossible to wholly distinguish whether it is investment funds or gambling funds,” but added that KAMCO would “do our best to exclude debts borrowed from securities companies.” He further stated that KAMCO will repurchase loans identified as speculative or related to entertainment businesses after purchase, rather than writing them off.
KAMCO currently holds KRW 366.2 billion in corporate debts and manages 3,423 corporate debts totaling KRW 1.4042 trillion. The company is also exploring the utilization of idle state-owned assets, discussing potential conversions of unused land – such as abandoned police stations - into housing with the Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transport.
