Increased Oversight Proposed for South Korean Financial Institution
A South Korean lawmaker has proposed notable changes to the oversight of Saemaul Geumgo, a major financial institution, sparking debate about the need for stricter regulations in the country’s financial sector. The proposed bill would shift the primary regulatory responsibility from the Ministry of Public Administration and Security to the nation’s financial authorities.
Currently,othre mutual financial institutions like Nonghyup,Suhyup,and Credit Unions fall under the direct supervision of financial authorities.However, Saemaul Geumgo operates under a different structure, leading to concerns about potential vulnerabilities.
The proposed amendment, introduced by rep. Yoo Dong-soo of the Democratic Party of Korea, aims to address these concerns. The bill mandates that Saemaul Geumgo’s credit and lending operations be directly overseen and inspected by the Financial Services Commission and the Financial Supervisory Service. This move follows a recent incident involving a significant deposit withdrawal from a branch due to bad loans, highlighting potential systemic risks.
Rep. Yoo highlighted the scale of Saemaul Geumgo’s operations, stating, “saemaeul Geumgo is a mutual financial institution with assets and business scale comparable to the five major commercial banks.” he underscored the necessity for increased oversight, adding, “Direct management and control by financial authorities is necessary.”
The urgency of the situation is underscored by the fact that Saemaul Geumgo’s real estate project financing (PF) loans reached a staggering 56 trillion won last year, with a concerning delinquency rate of approximately 10%. This level of exposure mirrors similar concerns seen in the U.S. real estate market in previous years, highlighting the potential for widespread financial instability if not properly managed.
Rep. Yoo expressed hope that the proposed changes will restore public confidence and allow Saemaul Geumgo to fulfill its original mission: ”I hope that through this revision of the law, Saemaul Geumgo will be able to regain the public’s trust and be reborn as a mutual finance company that empowers the common people and revitalizes the local economy in line with its original purpose of establishment.”
The proposed legislation is currently under review. Its passage would represent a significant shift in the regulatory landscape for South Korean financial institutions and could serve as a model for other countries grappling with similar challenges in managing the risks associated with large-scale mutual financial organizations.
The key quote from Rep. Yoo emphasizes the need for direct supervision: “Must be subject to direct supervision and orders from the Financial Services Commission and inspection from the Financial Supervisory Service.”
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