Kibo's bad-loan recovery rate slips to 3% as government expands COVID-era debt relief

Korea Technology Finance Corporation's annual bad-loan recovery rate fell from 4.2 percent in 2021 to 3.4 percent last year. [Kibo]

Kibo's bad-loan recovery rate drops from 4.2% in 2021 to 3.4% last year

Bad loans reach 6.21 trillion won last year; recoveries total 210.2 billion won

Kibo cites joint-guarantee exemptions and rising rehabilitation cases as recovery conditions worsen

Korea Technology Finance Corporation's bad-loan recovery rate fell to the 3 percent range last year, even as the government moves to expand debt restructuring for small business owners and the self-employed burdened by COVID-19-era debt. Kibo attributed the decline to a shrinking pool of debtors following the introduction of joint-guarantee exemptions and a rise in bonds on which creditor rights are restricted due to corporate rehabilitation and credit recovery proceedings. Analysts say the government's broader debt-relief stance is likely to add further pressure on policy finance institutions' ability to collect on outstanding loans.

According to data submitted to the office of Democratic Party of Korea lawmaker Kim Won-i, a member of the National Assembly's Trade, Industry, Energy, SMEs and Startups Committee, Kibo's annual bad-loan recovery rate fell from 4.2 percent in 2021 to 4.0 percent in 2022, 3.7 percent in 2023, 3.7 percent in 2024 and 3.4 percent last year. As of the end of last year, Kibo held 6.21 trillion won ($4.53 billion) in bad loans. The amount recovered during the year — including proceeds from bad-loan sales — came to 210.2 billion won, leaving the recovery rate at just 3.4 percent of the total outstanding balance.

The volume of bad loans grew by 709.1 billion won over five years, rising from 5.5 trillion won in 2021 to 6.21 trillion won last year. Annual recoveries, meanwhile, remained stuck in the 200 billion won range — 231.1 billion won in 2021, 216 billion won in 2022, 209.1 billion won in 2023, 222.9 billion won in 2024 and 210.2 billion won last year. As bad loans expanded without a proportional increase in recoveries, the recovery rate continued to slide.

Kibo's subrogation payments are expected to exceed 1 trillion won again this year. Payments had already reached 754.7 billion won through July. [Kibo]

Kibo cautioned, however, that bad loans can be recovered over multiple years, making it inappropriate to simply subtract a given year's recoveries from that year's outstanding balance and treat the difference as unrecovered debt. "There can be a significant time lag between when a subrogation payment occurs and when recovery takes place," a Kibo official said. "It is more reasonable to compare the total bad-loan balance against annual recovery amounts."

The declining recovery rate also reflects the expansion of policy-driven corporate rehabilitation support programs. Kibo operates a joint-guarantee exemption system, and said the number of debtors has fallen since the system took effect, while the volume of bonds on which creditor rights are restricted due to rehabilitation and credit recovery proceedings has grown. The joint-guarantee exemption, introduced in 2018, corrected the practice of holding company representatives personally liable for corporate debt when a business fails. The downside for Kibo is that the system has increased the pool of funds that are difficult to recover.

Also drawing attention is the government's recent move to again expand debt restructuring for small business owners and the self-employed carrying debt accumulated during the COVID-19 pandemic. Last year, the government announced a plan to purchase unsecured personal loans of up to 50 million won that had been in arrears for seven years or more, then either write them off or restructure them based on the debtor's repayment capacity. The program targeted about 1.13 million people and covered bonds worth around 16 trillion won. The government also broadened the eligibility and principal reduction available under the Fresh Start Fund.

Support measures targeting COVID-19 debt have continued this year as well. The government recently announced a plan for the New Leap Fund to purchase and either cancel or restructure about 4.5 trillion won in long-overdue small-business loans held by securitization companies and consumer finance firms. The plan also calls for clearing arrears of 20 years or more and expanding support for small business owners who have been making diligent repayments.

Kibo's bad-loan problem is part of a broader deterioration in asset quality across policy finance institutions. Bad loans that state-run asset manager Kamco acquired from Kibo, the Korea SMEs and Startups Agency and the Small Enterprise and Market Service totaled 3.4 trillion won from 2021 through last year. Kibo accounted for the largest share at 2.01 trillion won.

The government's debt restructuring policy aims to help small business owners and the self-employed who cannot return to normal economic activity because of debts accumulated during the pandemic. At the same time, Kibo's own data confirm that rehabilitation support measures — including joint-guarantee exemptions and the expansion of corporate recovery and credit rehabilitation programs — are making it harder to collect on outstanding bonds. The broader the scope of debt relief, the greater the need to simultaneously review and strengthen bad-loan management and recovery systems at policy finance institutions.

President Lee Jae Myung, at an Aug. 4 briefing by the Ministry of SMEs and Startups, said other countries had their governments absorb the burden of COVID-19 support, adding that South Korea had in some respects shifted onto small business owners and the self-employed responsibilities that the government should have borne. "I think the government needs to act boldly on at least part of this," he said. Lee also called for swift action at a Financial Services Commission briefing in July, saying long-term delinquent debtors with no ability to repay must be resolved quickly.

hong@heraldcorp.com
snsd@heraldcorp.com