On May 17, 2026, South Korea’s financial regulators found themselves at the center of a heated debate over the future of the country’s long-term delinquent debt market. Triggered by President Lee Jae-myung’s stinging criticism of the private bad bank 'Sangnoksoo'—which he labeled as "primitive predatory finance"—the government is now scrambling to ramp up private lenders’ participation in the Saedoyak Fund, a state-driven initiative designed to clean up decades-old bad loans and offer relief to overburdened borrowers.
The stakes are high. As of January 2026, private lending companies, often viewed with suspicion by the public, hold a staggering 4.9 trillion KRW in long-term delinquent debts, accounting for roughly 30% of all debts eligible for the Saedoyak Fund’s intervention. Despite the fund’s ambitious goal to purchase and either write off or restructure debts that have languished for over seven years and remain under 50 million KRW, only about half of the top 30 private lenders have agreed to participate. That leaves 15 major players on the sidelines, fueling concerns about whether the fund can truly make a dent in the nation’s bad debt problem.
According to Financial News, the crux of the issue lies in the numbers. Private lenders typically acquire these delinquent debts from banks or other institutions at 20–30% of their face value. The Saedoyak Fund, however, is only willing to buy them at about 5% of the unpaid principal balance—a gap that spells a 25 percentage point loss for lenders. For many in the industry, this isn’t just a tough pill to swallow; it threatens the very foundation of their business models, which rely heavily on the collection of such debts for revenue.
“Non-performing loan (NPL) companies depend on collections as their main source of income—it’s a matter of survival,” explained an industry insider, as cited by Financial News. If these companies sell their assets to the fund at a fraction of the price they paid, not only do they risk failing to repay the loans they took out to buy the debts in the first place, but their entire operational base could be shaken.
The mechanics behind these transactions add another layer of complexity. Private lenders, lacking the ability to take deposits, typically borrow funds from savings banks and capital companies, pledging the purchased debts as collateral. When these debts are sold to the Saedoyak Fund at a steep discount, the collateral vanishes, often prompting lenders to demand lump-sum repayments from the private lending firms. This creates a cash crunch that many smaller or less liquid companies simply cannot manage.
Recognizing these hurdles, the Financial Services Commission (FSC) and other financial authorities are now weighing a suite of additional incentives to coax reluctant lenders into the fold. According to Yonhap News, these include allowing participating private lenders to borrow from banks at lower interest rates—a privilege not previously afforded to this sector—and permitting them to sell debts to personal delinquent debt purchase funds. Furthermore, the FSC is considering converting lump-sum repayment obligations into long-term installment plans, giving lenders much-needed breathing room.
Another major carrot on the table is the expansion of the 'Excellent Microfinance Lender' designation, currently reserved for certain money lenders, to include debt collection agencies that cooperate with the government’s debt relief policies. Industry voices have been pressing for this change, hoping that such recognition will come with tangible benefits and help offset the financial pain of selling debts at a loss.
Yet, skepticism abounds. As Shin-A Ilbo notes, the effectiveness of these incentives remains in question, as debt collection is the lifeblood of many private lenders. Without meaningful compensation for losses, participation rates may remain stubbornly low, limiting the Saedoyak Fund’s ability to achieve its broader social goals.
Meanwhile, the saga of 'Sangnoksoo', the private bad bank at the heart of the controversy, is moving toward a resolution. Originally established in the early 2000s in the wake of the country’s credit card crisis, Sangnoksoo was backed by major banks and card issuers, including Shinhan Card, Hana Bank, IBK Industrial Bank, Woori Card, Kookmin Bank, and KB Kookmin Card, which together hold 70% of its shares. The rest is owned by private lenders and investment firms.
Following President Lee’s public rebuke, Sangnoksoo is now preparing to liquidate its holdings. Of its total 845 billion KRW in bonds, about 493 billion KRW are set to be transferred to the Saedoyak Fund as early as July 2026, with the remainder also headed for sale to Korea Asset Management Corporation (KAMCO). The process is already underway: according to Yonhap News, the Industrial Bank of Korea, which acts as Sangnoksoo’s trustee, will convene a shareholders’ meeting at the start of next month to finalize the fund participation agreement. Once all shareholders give their nod, KAMCO will move to confirm the list of bonds and begin its own evaluation, a process expected to take one to two months for eligible bonds and up to four months for others.
But the broader question remains: can the government persuade the remaining 15 private lenders to join the Saedoyak Fund and thus bring lasting change to the market? Without their participation, the fund’s impact will be limited, and many long-term delinquent borrowers may continue to languish under the weight of their debts.
Financial authorities are acutely aware of the delicate balance they must strike. On one hand, they must address public outrage over what President Lee called "primitive predatory finance." On the other, they must avoid destabilizing the private credit market or pushing lenders into bankruptcy. As one senior official from the FSC told Financial News, “We’re reviewing several ideas, including lifting the ban on selling personal delinquent debts that was imposed during the COVID-19 pandemic, but it’s not easy.”
Banking sector representatives have also weighed in, suggesting that a fundamental shift in attitudes toward funding private lenders is needed. “Finance is not considered productive credit, so banks can’t lower interest rates on their own,” one official remarked, highlighting the structural challenges that stand in the way of reform.
For now, all eyes are on the coming weeks, as the government seeks to finalize new incentive packages and lenders weigh their options. The outcome will not only determine the fate of the Saedoyak Fund but could also set a precedent for how South Korea handles bad debts and financial sector reform in the years ahead.
As the dust settles, it’s clear that the road to cleaning up South Korea’s bad debt market is fraught with tough choices and competing interests. Whether the government’s latest push will tip the scales remains to be seen, but one thing is certain: the conversation around debt, fairness, and financial stability is far from over.