Jeong Eun-bo "Mutual Finance Must Fulfill Its Original Role... Loan-to-Deposit Ratio Reform and Regulatory Arbitrage Resolution"

Meeting between the Financial Supervisory Service Governor and the Central Association of Mutual Savings Banks Chairman

[Asia Economy Reporter Jin-ho Kim] Jeong Eun-bo, Governor of the Financial Supervisory Service, emphasized on the 9th that "the mutual finance sector should more faithfully perform its original role of relational finance." This remark was made in response to concerns that the sector has recently been focusing more on 'external growth' rather than improving the economic and social status of its members and regional economic development.

Governor Jeong made these remarks during the 'Mutual Finance Central Association Chairpersons Meeting' held at the Bankers Hall in Myeong-dong, Jung-gu, Seoul. Attendees included Governor Jeong, Lee Seong-hee, Chairman of the NongHyup Central Association; Kim Yoon-sik, Chairman of the Credit Union Central Association; Lim Joon-taek, Chairman of the Fisheries Cooperatives Central Association; and Choi Chang-ho, Chairman of the Korea Forestry Cooperatives Central Association.

In his opening remarks, Governor Jeong stressed the fundamental role of mutual finance in 'relational finance and support for fair competition.' He stated, "We will improve the loan-to-deposit ratio calculation method to favor loans to members rather than non-members," and added, "We will also ensure that regulatory arbitrage arising from differences in related laws and supervisory authorities is addressed under the principle of 'same function - same regulation.'"

In particular, Governor Jeong highlighted the need for risk management in mutual finance, noting that "during the normalization of domestic interest rates, the burden on households and self-employed individuals will increase, and asset price adjustments may occur." Referring to the large-scale restructuring crisis caused by reckless management of some cooperatives in the late 1990s, he said, "The public funds injected at that time have not yet been recovered," and emphasized, "To prevent a repeat of past painful experiences, sound management and proactive responses to potential insolvency are necessary."

Regarding the supervision and inspection direction of mutual finance, he said, "We will strengthen preventive supervision to protect financial consumers." He added, "Customers of the mutual finance sector, such as farmers, fishermen, and local residents, are relatively more vulnerable to shocks," and stated, "Since there are many mutual finance cooperatives, the Financial Supervisory Service and the Central Association must establish and operate a close cooperative system." He further noted, "The five major mutual finance central associations and the permanent monitoring consultative body should be operated more effectively."

Governor Jeong said that based on such a permanent cooperative system, supervisory soundness should be flexibly implemented considering the size of cooperatives and their market impact. He also emphasized financial consumer protection for vulnerable groups such as local members and the elderly. Measures include reviewing the appropriateness of the interest rate calculation system to prevent excessive loan-deposit interest rate spreads during periods of rising interest rates and checking consumer rights such as the right to request interest rate reductions.

Additionally, Governor Jeong requested, "Please continue to pay attention to the stable management of household debt and improving financial accessibility for vulnerable groups such as the elderly," and stated, "Various opinions raised at the meeting will be actively reflected in future supervisory policies."