Out of 866 credit union unit associations, 104 have engaged in real estate and construction loans exceeding the limits. According to the 'Mutual Financial Supervision Regulations' implemented in December last year, associations must manage the ratio of loans to the real estate and construction industries to be below 30% of total loans each. Additionally, the total amount of loans in both sectors must be below 50% of total loans.
Concerns have arisen that the 'provision of local financial assistance' has neglected the core role of mutual finance, focusing only on increasing lucrative real estate project financing (PF) loans. Financial authorities have blocked new real estate and construction loans from associations that violated regulations and decided to conduct inspections and sanctions on these associations through the central council.
According to data submitted by Financial Supervisory Service on the 18th to the office of O Gi-hyeong, a member of the Democratic Party of Korea, out of 2,208 mutual finance unit associations, including credit unions, NongHyup, fisheries cooperatives, and forestry cooperatives, 122 associations (5.5%) violated the real estate and construction loan limit regulations as of the end of December last year. The credit unions had the highest number at 104, followed by NongHyup with 17 and fisheries cooperatives with 1. The forestry cooperatives had no associations that violated the regulations.
Mutual finance, which launched as local cooperatives in the 1960s, grew rapidly by highlighting the 'tax exemption on deposits and investments' benefits. However, in the past three years, while reducing household loans, there has been a rapid increase in high-interest PF loans, such as bridge loans (land acquisition stage PF) and land collateral loans, which pose significant risk.
Such reckless actions eventually backfired, causing a significant number of mutual finance organizations to record their largest losses ever last year. The credit unions reported a net loss of 341.9 billion won last year. This was the first time in 23 years since the International Monetary Fund (IMF) financial crisis that the credit unions posted a loss. The soundness of these institutions is deteriorating day by day. As of the end of last year, the delinquency rate of credit unions was 6.02%, an increase of 2.39 percentage points compared to the previous year. During the same period, the scale of non-performing loans increased by 56.9% to 7.5652 trillion won.
Financial authorities are intensifying risk management in mutual finance. The Financial Supervisory Service has implemented electronic restrictions on associations that violated loan limit regulations, preventing them from processing new real estate and construction loans. Additionally, it has been collecting loan settlement plans for real estate and construction from these associations and started checking the implementation status since the end of last month. The Financial Supervisory Service noted, 'Inspections and sanctions will be carried out against associations that violated loan limit regulations as of the end of the first quarter this year through each central council.'