Distress Bell Rings as 3 in 10 Credit Unions Default – Mutual Finance Crisis Unfolds

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Submitted2024.04.28 18:32
Edit2024.04.28 22:28
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3 in 10 credit unions are in default… mutual finance ‘distress bell’
Hankyung comprehensively searches 2,151 locations

Due to the bankruptcy of PF, the loss of the union increased 7 times in a year.
“The government must prepare high-intensity measures.”

Photo = Getty Image Bank ‘Grassroots financial companies’ such as agriculture, fisheries, credit unions, and forestry cooperatives that supported the local economy with total assets of 726 trillion won have almost collapsed. It was confirmed that 303, or a third of the 958 credit unions and fishing co-operatives across the country, made a loss last year. In just one year, the number of deficit unions increased sevenfold. The ’emergency bell’ is ringing as we are hit hard by higher financing costs due to high interest rates and bad real estate project finance (PF) loans.

On the 28th, the Korea Economic Daily conducted a detailed analysis of the performance of 2,151 credit unions nationwide through financial statistics from the Financial Research Service, and found that 352 unions were in deficit last year. Last year, 275 of the 869 credit unions across the country were found to be ‘deficit unions’. The number of deficit unions increased dramatically from 42 to 275 in one year. As a result of a series of loss-making unions, the net profit of all credit unions decreased last year by 95.6% compared to the previous year.

Unit fisheries cooperatives have also been pushed to the brink. Last year, 28 out of 89 fishing cooperatives across the country suffered deficits. The total net loss of the fishing cooperative reached 59.1 billion won.

The same goes for Agricultural Cooperatives and Forestry Cooperatives. Last year, the NPL ratio of the national Nonghyup, the largest in the mutual financial sector, recorded the highest level (3.01%) since 2011, when the Financial Research Service began compiling statistics on -related A finance department official said, “While all units, including the National Agricultural Cooperative Federation, are struggling with deficits and non-performing loans piling up, there are issues of lax management and control on the part of -inside lax continues,” saying, “It is time to create high-intensity measures for systematic management and guidance by the government.”

Nonghyup, bad loans alone amount to 11 won… Credit union, 275 places in default

Financial cooperatives that form the backbone of the local economy, such as agriculture, fishing, credit cooperatives, and forestry cooperatives, are shaking. After the rise of ‘deficit unions’ last year, it was revealed that trillions in non-performing loans had accumulated. The analysis is that the combination of unreasonable loans without standards, excessive competition in selling high-interest savings accounts, lax management and supervision, poor internal control, and management unprofessionalism on lead to total bankruptcy. Despite this situation, unions across the country are increasing their staff and are still spending more money on entertainment.

○ 275 credit unions are in default

According to the Financial Research Service on the 28th, at the end of last year, substandard and substandard loans from 1,055 agricultural cooperatives in Korea amounted to KRW 10.7754 trillion. It increased significantly by 95.1% from 5.3187 trillion won in 2022. This means that uncollectible loans have increased rapidly, and this is the largest amount since 2011 when financial authorities released related statistics. As a result of the Korea Economic Daily analyzing financial statistics from the Financial Research Service, it was found that there are several credit unions with a ratio of substandard loans and lower than double digits.

Loss-loss mergers are also appearing one after the other. Last year, the net profit of the mutual financial industry, including agriculture, fisheries, credit unions, and forestry cooperatives, was 2.0407 trillion won, a decrease of 1.0869 trillion won compared to the year before (3.1276 trillion won). It was revealed that 28 out of 89 co-operatives were in deficit. The entire fishing cooperative recorded a net loss (-59.1 billion won) for that period.

275 credit unions, 31 forestry cooperatives, and 18 agricultural cooperative units were also driven to deficit. This is due to an increase in loan loss provisions due to an increase in non-performing loans and a decrease in net interest margin. An official from the mutual finance sector said, “With inflation rising and interest rates showing no signs of abating, the local economy is sinking, and the mutual finance industry is taking a hit frozen straight and many products are being sold at high interest rates, which is causing headaches.” “I’m suffering,” he said.

○ High interest savings account suspended, ‘Nonghyup absurd’

In the mutual financial sector, it is assessed that excessive competition and poor internal control led to a crisis in unit associations. There are even cases where people sell high interest savings products competitively and then ask to cancel when they can’t afford them. The Donggyeongju Agricultural Cooperative filed an appeal earlier this month, asking customers to cancel their savings accounts. This is because savings accounts with an annual interest rate of 8.2%, which were sold mainly non-face-to-face in November 2022, were sold for about 900 billion won, much higher than the original target of 10 billion won. An industry official said, “Donggyeongju Agricultural Cooperative, a cooperative unit with assets of 167 billion, has annual interest costs of tens of billions of won,” and added, “It is suffering from management problems due to the incident unusual savings.’”

Last year, at a unit of Nonghyup in Gimhae, an employee was arrested after it was discovered that he made a bad loan worth 13 billion won.

○ The number of employees increases every year, and entertainment costs also increase.

Even though local agricultural cooperatives are close to bankruptcy, they still spend a lot of money on entertainment. The agricultural co-operative’s entertainment costs alone have increased by around 35% over the past three years. The situation is similar elsewhere.

The company is about to dry up, but the National Agricultural, Fisheries, Credit Union and Forestry Cooperatives are still known as ‘God’s Workplace’. With almost no staff turnover, the number of staff is reaching a high level every year. Last year, the number of employees at local agricultural cooperatives across the country was 95,288, an increase of about 700 compared to the previous year. The unit cooperative had a total of 7,644 employees at the end of last year, an increase of 1,600 in 10 years.

There are growing voices inside and outside the industry that a comprehensive management system reform is inevitable, including integrating the management system of unit associations scattered across government ministries . An industry official said, “Korea Asset Management Corporation (KAMCO) has stepped in to help financial institutions resolve non-performing loans, but that is not enough.” they must create a high-intensity policy to prepare for the worst case scenario.” he said.

Reporters Jaewon Park/Euijin Jeong/Hyeonggyo Seo wonderful@hankyung.com