[Clock Zero Mutual Finance] 'High Interest Rates' at Nonghyup and Others, Liquidity Concerns

[Asia Economy Reporter Buaeri] It has been revealed that liquidity ratios have significantly dropped among cooperatives offering high-interest deposit and savings products in the mutual finance sector. Some cooperatives even saw their liquidity ratios fall below 50%, meaning they only have the capacity to return 50% of deposits if withdrawal demands surge within three months.

According to the financial sector on the 3rd, the liquidity ratio of Jochon Saemaeul Geumgo, which offers a 6% deposit product, fell from 76.42% in 2021 to 56.16% as of the end of June last year. Daeseong Saemaeul Geumgo, offering a 5.9% deposit product, also had a liquidity ratio around 66.97%. Examining the liquidity ratios (as of the end of June last year) of 21 cooperatives?7 each from Saemaeul Geumgo, Nonghyup, and Shinhyup?that provide high-interest deposits compared to others, 16 had liquidity ratios below 100%. These cooperatives currently offer deposit products with interest rates in the mid-5% to 6% range.

All seven Saemaeul Geumgo cooperatives had liquidity ratios below 100%, with declines ranging from 10 percentage points to over 100 percentage points compared to the same period last year. For example, Garak Saemaeul Geumgo, which offers a 7% savings product, saw its liquidity ratio drop from 182.32% in June 2021 to 73.69% in June last year. Shinhyup generally maintained liquidity ratios close to 100%, but five out of seven cooperatives experienced deterioration compared to the previous year.

Among regional Nonghyup cooperatives, two out of seven had liquidity ratios below 50%. Seogwipo Nonghyup, offering a 5.5% deposit product, and Namwon Nonghyup had liquidity ratios of approximately 42.48% and 42.95%, respectively. Donggyeongju Nonghyup, which experienced a special product cancellation crisis, had a liquidity ratio of 60.48%, while Hapcheon Nonghyup’s liquidity ratio was 91.29%.

The liquidity ratio is calculated by dividing liquid assets by liquid liabilities maturing within three months. While savings banks are required to maintain liquidity ratios above 100%, mutual finance institutions such as Shinhyup, Saemaeul Geumgo, and Nonghyup are not yet subject to this requirement. A mutual finance sector official stated, "At the central association level, we are guiding cooperatives to increase the proportion of highly stable and liquid assets. There is a tendency to conduct special promotions centered on cooperatives or credit unions with low liquidity ratios, but since deposits are protected by the Deposit Insurance Fund, the likelihood of situations that customers should worry about is low." However, starting in 2024, mutual finance institutions will be required to maintain liquidity ratios of 100% (90% for cooperatives with total assets under 100 billion KRW) under the revised Mutual Finance Business Supervision Regulations, so tighter management is expected.

Regarding this, a Financial Supervisory Service official explained, "Each central association manages liquidity ratios primarily, and the authorities are guiding them to prepare plans to raise these ratios. Also, if withdrawal situations occur, the central associations are preparing to secure funds according to the amounts deposited by cooperatives."