[money1] South Korea “Credit Guarantee Association gives up” – Not possible without 3．5 trillion

“Just give loans to small business owners!” “Well, if there’s subrogation…”
Even in Japan, when renting a property, instead of having a guarantor, you may use a company that says “we’ll take care of it.” Simply put, it is a company that undertakes “subrogation,” i.e. repaying debts on behalf of debtors. As mentioned in a previous article on money1, the economy has been hit hard by the COVID-19 pandemic, so we have expanded credit limits for small business owners. At this time, the Credit Guarantee Fund was brought into existence. The Korean financial authorities said, “Just lend money to small business owners who are in financial difficulty! If the debts fall behind, the Credit Guarantee Fund will repay them.” From the bank’s perspective, they’d say, “Well, if that’s the case, we’ll do it.” Providing loans to small business owners who have fallen on hard times due to the coronavirus pandemic is something that would normally be risky to do, but if a public institution is making subrogation payments, then well, we have no choice but to lend money. Obviously, if the money lent by a bank goes bad, the Credit Guarantee Fund must make a substitute payment to that extent, and the more banks say they can’t repay, the more the Credit Guarantee Fund will be in trouble. What’s amazing is that it actually turned out that the Credit Guarantee Fund was no longer able to do anything. ・We need 3.5 trillion won! The government should provide support
The Credit Guarantee Fund and the Korea Asset Management Corporation have submitted their “2024-2028 Medium- to Long-Term Financial Plan” to the Ministry of Strategy and Finance. This is what it means to say “I can’t do this anymore.” It said it will need a total of 3.4995 trillion won in government support by 2028. The Credit Guarantee Fund has set aside 2.5275 trillion won for subrogation of “entrusted guarantees for small businesses”* and other such activities. Meanwhile, the Korea Asset Management Corporation said it needed 972 billion won to continue its New Starting Fund, a debt adjustment program for small businesses. * A program that allows small businesses to receive loans of up to 40 million won from banks. The one that was left to foot the bill was the Credit Guarantee Association. The cry is that the Credit Guarantee Corporation and the Korea Asset Management Corporation need a combined total of 3,499.5 billion won — or about 3.5 trillion won. Since public institutions were used to line the banks’ dime, the South Korean government naturally had to provide the money. The reason why there are cries of distress is that the amount of money required for “subrogation payments,” which is their main business, has ballooned to an abnormal level. Below is a comparison of the subrogation amounts offered by Credit Guarantee Associations. In 2022, it was 1.3599 trillion won, but in 2023 it is expected to increase by approximately 1.7 times to 2.2759 trillion won. This means that the number of people who are unable to repay money even if they borrow it (even if they are able to borrow it) is increasing. This is because the Credit Guarantee Association has to make a substitute payment. I don’t know how many times I’ve mentioned this on money1, but in Korea, even if they issue a decree of amnesty, it’s the same thing. They have no morals, and they think it’s okay to borrow money and not have to pay it back, so whatever they do is pointless. The debt just keeps piling up. South Korea’s financial markets are truly barren. (Yoshida Hunting @dcp)
2024.09.09.

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