“Local commercial districts are collapsing, and half of mutual financial institutions are in the red” ... FSC chief: “Considering ways to connect with local communities”

[Financial News] Financial Services Commission Chairman Lee Eok-won said he would develop medium- and long-term policy alternatives for Saemaul Geumgo and credit unions, whose soundness has been deteriorating in the short term. As transactions of all kinds, from consumer goods to luxury goods, move from offline to online channels, credit unions and Saemaul Geumgo that lent to small business owners and self-employed people in local communities have fallen into distress. National Policy Committee Chair Yoo Dong-su warned, “Without medium- and long-term measures, credit unions and Saemaul Geumgo will face a very difficult situation.”
In response to a question from National Policy Committee Chair Yoo Dong-su about the deteriorating soundness of credit unions and Saemaul Geumgo amid the economic downturn in local commercial districts, Lee said at the committee’s parliamentary audit at the National Assembly in Yeouido, Seoul, on the 8th, “I’ll consider how credit unions and Saemaul Geumgo should define their identities and what business models they should adopt.”
Yoo, the committee chair, pointed out that it was a structural problem that roughly half of individual credit unions and Saemaul Geumgo units were running deficits. He cited the shift to online retail as the reason paid-in capital and capital ratios were declining at the same time.
Yoo said, “The share of institutions reporting losses is about 52% of all credit unions and 51% of Saemaul Geumgo. The share of credit unions and Saemaul Geumgo whose member contributions have fallen compared with 2023 is also as high as 61% and 30%, respectively.”
The number of credit unions and Saemaul Geumgo falling below the minimum regulatory ratios for soundness management is also rising sharply. The minimum regulatory net capital ratios are 2% for credit unions and 4% for Saemaul Geumgo. The number of credit unions below the threshold increased 2.2-fold, from 29 in 2023 to 84 at the end of June this year. Over the same period, the number of Saemaul Geumgo below the threshold surged 6.3-fold, from 25 to 153.
The share of institutions with impaired capital was also estimated at 25% for credit unions and 18% for Saemaul Geumgo. In response, Lee said, “The relevant institutions are discussing measures to restore soundness through the Mutual Finance Council, and considerable progress has been made,” adding, “Excessive investment in real estate project financing (PF) had an impact.”
Yoo warned, “Fundamentally, the share of foreign shareholders in financial institutions in the first-tier financial sector, such as banks, is increasing. Unless a policy decision is made about the Saemaul Geumgo and credit unions that ordinary people invest in and use, they will probably face a very difficult situation in 2030 or 2035.” He added, “I ask the FSC to recognize this issue fully, devise measures, and report at least the direction it plans to take before the comprehensive audit.”
[email protected] Park Mun-su Reporter