- Published 2026.10.28 09:43
Transfers 37.9 billion won in second batch of long-term NPLs to Sae Dotagim Fund
Improves guarantee soundness and secures capacity by reducing loan-loss provisions
Task remains to absorb new subrogation and unify regional write-off standards
The Korea Federation of Credit Guarantee Foundations and three regional credit guarantee foundations will sell 37.9 billion won (about $28 million) worth of non-performing loans (NPLs) held by long-term delinquent borrowers to an external bad bank on Oct. 29. The move is an unavoidable financial self-rescue measure to ease the astronomical subrogation burden caused by a cascade of small business closures and high interest rates, and to defend the capital soundness of policy finance institutions.
The Korea Federation of Credit Guarantee Foundations announced on Oct. 28 that it will sign a second receivables transfer agreement with the Sae Dotagim Fund on Oct. 29 and hand over NPLs of 5,639 long-term delinquent borrowers. The sale amount consists of loans that have been delinquent for more than seven years and have effectively lost recoverability: 29.7 billion won (about $22 million) held by the Korea Federation of Credit Guarantee Foundations and 8.2 billion won (about $6.1 million) held by three regional foundations—North Gyeongsang, Gwangju and North Jeolla. After the sale, principal write-offs or conditional debt restructuring will proceed through the Saechuljigi Fund based on borrowers' repayment capacity.
Behind the rapid follow-up to the first bulk sale is a structural credit risk threatening the entire policy guarantee ecosystem. As maturities of special guarantee loans that surged during the COVID-19 pandemic have been arriving one after another, subrogation payments—where the guarantor repays banks on behalf of defaulting borrowers—have increased sharply. According to published statistics, the subrogation rate of the Korea Federation of Credit Guarantee Foundations soared to 4.59% as of April 2026, with net subrogation payments reaching 679.1 billion won (about $501 million). In contrast, the recovery rate on indemnity claims has remained in the 2–4% range for years, steadily increasing the share of unrecoverable loans.
Loans tied up as long-term NPLs with no repayment for more than seven years add to the burden of loan-loss provisions on guarantee institutions' books. This ultimately erodes the statutory guarantee multiplier and undermines the basic capacity to supply new guarantees. Transferring such unrecoverable loans to a bad bank removes distressed assets from the books and partially improves soundness indicators. Borrowers also get a chance to shed the long-standing label of financial delinquent and return to normal economic activity.
The Korea Federation of Credit Guarantee Foundations and regional credit guarantee foundations already sold about 420 billion won (about $310 million) worth of NPLs in the first half of 2026 through the first receivables transfer agreement. At the time of the first sale, around 40,000 marginal borrowers were included in the cleanup, and with this additional transfer of remaining volume, the cumulative cleanup amount this year has exceeded 450 billion won (about $332 million). This serves as a firewall that concentrates loans with signs of distress into policy funds and prevents instability from spreading to private financial markets.
However, this measure has clear limitations as a fundamental solution to credit risk. Since the sale targets only long-term NPLs delinquent for more than seven years, it is insufficient to absorb new subrogation volume that is becoming distressed due to prolonged high inflation and domestic demand slump. Moreover, because the sale price is structurally bound to be extremely low relative to principal, the actual cash inflow recovered by guarantee institutions from the transfer is minimal and disposal losses are inevitable.
The fact that only three of the 17 regional credit guarantee foundations nationwide participated in the second sale is also a challenge to address. Each regional foundation under its respective local government has different cumulative deficits, fiscal conditions and loan write-off standards, making rapid nationwide NPL cleanup difficult. Cleaning up book losses may temporarily tidy up headline indicators, but if the pace of new delinquency inflows outpaces the pace of loan cleanup, deterioration in soundness and pressure for taxpayer money injections are bound to repeat. Ultimately, unifying nationwide write-off standards, encouraging self-rehabilitation of marginal borrowers, and establishing a sustainable risk management system at guarantee institutions will be key indicators for the success or failure of policy guarantees going forward.
(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 9, 2026.)
※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.
