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Korea to launch rescue fund for heavy debtors this week

March 25, 2013 - 19:49 By Korea Herald
The South Korean government unveiled Monday detailed plans of a rescheduling fund for heavy debtors, one of President Park Geun-hye’s key presidential campaign pledges.

The Financial Services Commission, the country’s top financial regulator, said the public fund aimed to ease the debt burdens of the heavily-indebted persons will be launched on Friday with an initial size of 1.5 trillion won ($1.34 billion), to be run for the next five years.

The government had initially proposed a fund worth 18 trillion won, but it now plans to increase the amount gradually through the course of running the fund, according to the FSC.

The fund will buy overdue debts held by local banks and other non-bank institutions that are worth less than a combined 100 million won and at least more than six months in delinquency with their principal repayment.

The FSC estimated the number of eligible applicants to benefit from the fund is around 324,000.

The FSC said the fund will need initial seed money worth 800 billion won to purchase such overdue debts. The government has currently secured 500 billion won, with the rest to be raised through bond sales, it added.

The fund will spend the remaining 700 billion won out of the 1.5 trillion won in converting overdue debts into those with longer maturities and lower interest rates, the FSC said.

The fund’s debut came as President Park vowed during her presidential campaign last year to ease financial burdens among the lower-income group struggling with high indebtedness.

South Korea’s high household debt is feared to spawn massive defaults since the local economy is slowing down amid a low-growth trend. The country’s household debt has reached a record 959.4 trillion won as of end-2012, as central bank data showed.

Such concerns have prompted policymakers here to come up with measures to stave off financial instability stemming from individual borrowers. (Yonhap News)