FSC plans to write off the loans of 1.6 million

The country’s financial regulator announced a plan to forgive debt owed by 1.59 million truly struggling borrowers.

The Financial Services Commission said Wednesday that it will write off debts of less than 10 million won ($9,290.4) that have remained unpaid for more than 10 years if the borrower proves to have no ability to fulfill the obligation.

About 1.59 million people carry such relatively small, overdue loans from both public and private lenders. Among them are 830,000 people involved with the so-called National Happiness Fund, a state-run fund designed to restructure debt for struggling borrowers. The remaining 760,000 borrowers owe private sector lenders and public sector financial corporations.

“If someone has no available assets to be recouped and has a monthly salary of less than 990,000 won, we deem that he or she doesn’t have the ability to repay debt,” said Choi Jong-ku, chairman of the Financial Services Commission.

The chairman, however, declined to specify the amount of debt to be forgiven. “We need to receive applications so that we can predict the size of the debt relief,” the chairman said. Borrowers will start filing applications next February.

How the financial regulator will handle debt held by private sector lenders is a big question going forward.

The Financial Services Commission plans to cancel the loans after buying them from the private lenders. To finance that, the agency hopes to receive voluntary donations from related civic organizations and financial institutions.

The approach is considered unusual in terms of the size of the debt relief and the manner.

Previous governments have offered partial reduction of debt held by low-income people, not outright debt forgiveness.

The Park Geun-hye administration promised to help adjust debt owed by 3.22 million people through the National Happiness Fund, but the actual number of beneficiaries was limited to 660,000.

Former President Lee Myung-bak vowed to help boost the credit ratings of 7.2 million people, though he failed to follow through on the pledge.

The Roh Moo-hyun government eased criteria for individual debt workout programs while his predecessor Kim Dae-jung focused on debt relief for farmers.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]