[Song Seungseop's Financial Light] What Is the Difference Between Nonghyup and Nonghyup Bank?

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Therefore, Asia Economy selects one financial term each week and explains it in very simple language. Even if you know nothing about finance, we light the ‘fire’ of financial understanding with ‘light’ stories that you can immediately grasp.

[Image source=Yonhap News]

[Asia Economy Reporter Song Seungseop] Have you ever entered a place seeing the Nonghyup mark and been told, “This is not a bank but a cooperative”? Even now, questions about the difference between NH Nonghyup and NH Nonghyup Bank often appear on internet communities. The two institutions belong to the same group and have similar names, so they seem almost identical, but they are distinctly different. What are the differences?

First, you need to understand Nonghyup’s organizational structure. Nonghyup is an abbreviation for ‘Nong-eop Hyupdong Johap’ (Agricultural Cooperative). It means an organization created by farmers themselves to strengthen competitiveness. The foundational law for Nonghyup’s establishment is not the Banking Act but the ‘Agricultural Cooperative Act.’

The organizational system of the National NongHyup network. Source: NongHyup Central Association

About 2,245,000 farmers are members of Nonghyup. Among them, there are individual members and corporate members. Numerous members form different cooperatives; the ‘Regional Nonghyup’ is the most numerous with 923 branches. The ‘Regional Livestock Cooperatives’ (116 branches), mainly seen in rural areas, are also cooperatives formed by farmers.

With so many cooperatives, various issues arise, right? Consistent policies are also necessary. That is why 1,118 cooperatives form the ‘Nonghyup Central Association.’ The Nonghyup Central Association plays the central role of the cooperative. According to current law, the Nonghyup Central Association must ‘serve members or cooperatives to the maximum extent when conducting business.’ It cannot perform tasks biased toward the interests of some cooperatives or members.

Under Nonghyup Central Association, Financial Holding Company, and under the Holding Company is 'NH Nonghyup Bank'

Therefore, to strengthen competitiveness, the Nonghyup Central Association has established ‘Nonghyup Economic Holding Company’ and ‘Nonghyup Financial Holding Company’ under its umbrella. The Economic Holding Company includes Hanaro Distribution, Nonghyup Grain, Nonghyup Mokuchon, etc. The Financial Holding Company includes NH Nonghyup Life Insurance, NH Investment & Securities, and NH Nonghyup Bank. Farmers formed cooperatives, cooperatives form the Central Association, and under the Central Association’s financial holding company is NH Nonghyup Bank.

Organizational Structure of NongHyup. As of May 2020. Source = NongHyup Central Association

In other words, Regional Nonghyup is a kind of mutual financial institution created by members. Since members directly pooled funds to establish it, its main purpose is not ‘profit-seeking’ but improving the status of farmers and balanced development of the national economy. You can open accounts and borrow money, but it is not called a bank. On the other hand, NH Nonghyup Bank is closer to a commercial bank. Although it is a special corporation unlike other commercial banks, its purpose is profit-seeking. It is also subject to financial and banking policies of financial authorities.

There are functional differences as well. Regional Nonghyup may offer different deposit, savings, and loan benefits to members, non-members, and quasi-members because its founding purpose is to serve members. NH Nonghyup Bank, however, is a single corporation with branches from Seoul to Jeju Island, so customer deposit, savings benefits, and loan policies are uniform. But since each Regional Nonghyup is a separate legal entity, deposit and savings interest rates or loan limits may vary depending on which cooperative you visit.

There are other differences too. Cooperatives cannot use the term ‘bank,’ so if there is no ‘bank’ sign on the storefront, it is a Regional Nonghyup. Also, each financial institution has its own unique code: NH Nonghyup Bank uses 011, and each unit Nonghyup uses 012. NH Nonghyup Bank accounts include codes 01, 02, and 12, while unit Nonghyup uses 51, 52, and 56.