The New Starting Fund debt adjustment application has exceeded 30 trillion won; the approval rate in the financial sector is the key.

The new Startup Fund Debt Adjustment Application Scale, established to ease the debt burden on small business owners and sole proprietors, has exceeded 30 trillion Korean won. Due to the impact of economic slowdown and high interest rates, the number of vulnerable borrowers facing repayment difficulties continues to grow, leading to an increased demand for the use of this system.

According to data from the Korea Asset Management Corporation (KAMCO) and the Credit Recovery Committee as of March 17, the total debt adjustment applications for the Startup Fund reached 30.189 trillion Korean won. An increase of 300k won compared to the previous month. The number of applicants for debt adjustment also rose to 190.86k, an increase of 6,073 from the previous month. The Startup Fund was established to help small business owners and sole proprietors who experienced reduced sales and increased expenses after the COVID-19 pandemic, by reorganizing their debts to help them recover and resume normal economic activities through adjustments to principal or interest that are difficult to repay.

Although not all applications have been converted into actual adjustment plans, the scale of agreements reached is also significant. Among all applicants, as of March, 127.56k borrowers have actually signed debt adjustment agreements. These borrowers received a total adjusted debt principal of 11.3398 trillion Korean won. This indicates that beyond just the application stage, the number of cases where the principal and interest burden has been effectively reduced through this system is quite substantial.

In terms of debt adjustment methods, debt transfers involving financial institutions transferring bad debts and applying debt forgiveness involve 64.42k borrowers, with a debt principal scale of 5.9349 trillion Korean won. In this case, the average principal forgiveness rate is about 73%. Mediated debt adjustments, where negotiations occur between financial institutions and debtors, involve 63.14k borrowers, with a debt amount of 5.4049 trillion Korean won, and an average interest rate reduction of approximately 5.2 percentage points. Compared to last month, there are no significant changes in either the forgiveness rate or the reduction amount for these two methods. In other words, while the support intensity remains roughly the same, the number of users shows an increasing trend.

However, some opinions point out that to improve the perceived effectiveness of the system, the approval rate within the financial sector is more critical. The “disapproval rate” for mediated debt adjustments, based on account numbers, is 67.9%. This means that a considerable proportion of financial institutions do not agree to the adjustment plans. Among industry-specific “disapproval response rates,” credit finance is the highest at 86.1%, followed by banks at 64.6%, savings banks at 62.8%, and mutual finance at 21.5%. Whether debt restructuring can proceed smoothly in practice depends on the participation of the financial sector. Therefore, in addition to expanding the application scale in the future, discussions on supplementary measures to improve the success rate of adjustments are likely to continue.