Sharp Increase in Applicants of Individual Workout

Applicants of individual workout have increased in number.

As the domestic finance companies have minimized the limits of household loan and credit card, many delinquent customers have increased. It is because of a strong restoration will of the young people of 20`s∼30`s.

The government determined to add credit unions, community credit cooperatives and regional Nonghyup which were excluded from an agreement of the individual workout.

On January 8, the Credit Recovery Supporting Committee announced that there were total 505 applications of the individual workout up to the end of last December.

There were just 94 applicants in November, but there were 411 applicants only in December. Among them, 42 people passed a debt arrangement case by receiving consent of the finance company.

The Credit Recovery Supporting Committee expanded the application qualification of the individual workout to four stages(delinquent customers who own money of below 0.3 billion won from over two finance companies) on December 23, 2002.

Among applicants, people of 20`s (172 persons) and 30`s (186 persons) occupied over 70%. As a reason why they ran into debt, there are 41%(208 persons) for the grim realities of life, 25%(124 persons) for the business failure and 14%(68 persons) for the credit card over-consumption in order.

In December, the finance company lowered a high interest on arrears to a level of prime rate and reduced the principal for two persons.

Mr. `A` had total debts of 15580000 won including the principal and interest. However, after the debt arrangement, he could reduce debts to 10,440000 won. Mr. `B` reduced his debts from 14,820000 won to 9,930,000 won. He could reduce 1/3 of total debts.

When the debt adjustment case is concluded, individuals can be excluded in the delinquent customers because they make the loan agreement with the finance company and repay the existing loan.

Besides, the Financial Supervisory Commission (FSC) reported in a meeting of economic policy regulation held on January 8, “We can make delinquent customers repay the adjusted debts after five years to expand the qualification of individual workout. When the income increases during the repayment, they can repay in advance. Customers have currently repaid debts in equal installment for five years.

FSC will strengthen a prudential regulation on the credit card company from April. The base of management improvement recommendation increased from below 7% to 8% of capital adequacy ratio and a request of management improvement increased from below 6% from below 4%.

Dong-Won Kim Do-Young Kim daviskim@donga.com nirvana1@donga.com