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Gov't launches 'New Leap Fund' bad bank program aimed at buying, writing off delinquent debt

Published: 01 Oct. 2025, 19:32 Updated: 01 Oct. 2025, 21:02

Lee Eog-weon, the chairman of the Financial Services Commission, delivers a congratulatory speech at the launch ceremony of the New Leap Fund at the Korea Press Center in central Seoul on Oct. 1. [NEWS1]

The Lee Jae Myung administration launched on Wednesday the “New Leap Fund” bad bank program aimed at buying up and writing off delinquent debt held by vulnerable borrowers and small business owners.

Starting this month, the program will purchase unsecured debts of up to 50 million won ($35,600) that have been overdue for more than seven years. Beginning at the end of the year, it will begin canceling those debts in full. Debts from gambling or entertainment businesses, as well as those held by most foreigners, will be excluded.

The Financial Services Commission (FSC) and the Korea Asset Management Corporation (Kamco) held a launch ceremony at the headquarters of the Credit Counseling and Recovery Service.

The fund will be run with 840 billion won ($597.58 million) in capital — 400 billion won in government financing and 440 billion won in contributions from financial institutions. Officials expect it to purchase up to 16.4 trillion won ($11.67 billion) in nonperforming loans, benefiting an estimated 1.13 million people.

Over the next year, the fund will acquire delinquent loans from participating banks, insurers and credit card companies. Once purchased, collection efforts will be halted, giving borrowers relief from debt collectors.

Eligibility for debt cancellation will be determined through a repayment capacity test to prevent moral hazard. Borrowers will be deemed incapable of repayment if their income is at or below 60 percent of the median income (about 1.54 million won per month for a single household) and their assets are limited to essential living property.

Such property includes farmland worth less than 20 million won ($14,200), a house valued under the minimum preferential repayment threshold under Korea’s Housing Lease Protection Act, vehicles older than 10 years or weighing under one ton and financial assets under 1.85 million won ($1,300). Basic livelihood security recipients, disability pension recipients and other low-income groups will be eligible for automatic debt write-offs without the screening process.

A Hana Bank official holds up 50,000 won bills at the bank's office in Jung District, central Seoul on Feb. 19. [NEWS1]

If a borrower is found to have an income above 60 percent of the median or recoverable assets but still lacks the ability to fully repay their debt, their debt will be restructured through the Credit Counseling and Recovery Service. In such cases, they may receive between 30 and 80 percent in principal reduction, full interest cancellation and repayment periods of up to 10 years.

However, if the borrower is deemed sufficiently capable of repayment — such as having income exceeding 125 percent of the median — debt collection and repayment procedures will resume.

The program requires no application from borrowers. When financial institutions sell delinquent loans to the fund, and once repayment assessments are complete, borrowers will be notified. They will also be able to check the status of their debts on the fund's website.

To address fairness concerns, those with debts overdue for more than five years but less than seven will be eligible for special restructuring, including up to 80 percent principal reductions. Borrowers who have already entered restructuring programs and made payments will be eligible for special loans worth up to 500 billion won ($355.79 million).

This applies only to individuals who have been in debt for more than seven years and have applied for debt restructuring through the New Leap Fund or the Credit Counseling and Recovery Service and have faithfully complied with the program for at least six months.

The Government Complex in Jongno District, central Seoul on Dec. 30, 2024 [NEWS1]

Debts from gambling, nightlife and entertainment businesses will be excluded, as will those of foreign nationals, except for permanent residents and marriage migrants.

Still, experts warned that large-scale debt cancellation could fuel moral hazard.

“Korea’s debt write-off policy risks unfairly penalizing borrowers who have worked hard to repay their loans while encouraging others to believe small debts don’t need to be paid back,” said Kang Sung-jin, an economics professor at Korea University. “Rather than blanket debt forgiveness, the government should focus on welfare measures such as job creation to support vulnerable groups and small business owners.”

Financial institutions are voicing discontent over the government’s plan to source more than half of the New Leap Fund’s resources from the private sector, calling the burden “excessive.” The industry’s contribution was originally set at 400 billion won but has since risen to 440 billion won ($313.10 million). Major financial groups, including KB, Shinhan, Hana, Woori and NH, have already spent trillions of won on programs to support low-income households and small businesses.

“Even Adam Smith, who laid the theoretical foundation for the capitalist system, emphasized solidarity and social cooperation as essential preconditions for its establishment and operation,” said Lee Eog-weon, the chairman of the FSC. “The New Leap Fund is not just about canceling debt but about helping those who have lost repayment capacity start anew, thereby restoring a virtuous cycle in our economy and strengthening trust and solidarity within our society.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY YEOM JI-HYEON [[email protected]]