The Financial Supervisory Service (FSS) has issued a 'management caution' measure to the National Federation of Fisheries Cooperatives (Suhyup Junganghoe) after it lost the entire principal of 50 billion KRW in overseas alternative investments.
According to the sanctions disclosed by the FSS on the 24th, during the inspection of Suhyup Junganghoe, the FSS demanded strengthening of the overseas alternative investment review capabilities and notified 9 management caution items and 5 improvement items.
According to the FSS, Suhyup Junganghoe embarked on an overseas alternative investment worth 40 million USD in March 2018, but due to the borrower's final default, it recognized impairment losses of 28.2 billion KRW in 2020 and 21.9 billion KRW in 2021. The entire investment amounting to 50 billion KRW was written off and recorded as a loss.
The FSS pointed out that at the time of the investment decision, Suhyup Junganghoe should have thoroughly reviewed risk factors such as loan-to-value ratio (LTV) and verification of documents related to project progress in advance, but neglected to do so. It also criticized the fact that no responsibility was assigned nor were measures to prevent recurrence prepared regarding the investment case.
The FSS urged Suhyup Junganghoe to take appropriate measures such as determining responsibility through internal audits and to strengthen review tasks including business feasibility evaluations to prevent similar cases from occurring.
Additionally, it was found that some Suhyup cooperatives classified the asset soundness of nine loans executed for solar power generation projects as 'normal' despite construction being halted. The FSS requested Suhyup Junganghoe to guide the cooperatives to reclassify the asset soundness.
The FSS also called for strengthening management of liquidity risk, which arises from mismatches in asset and liability maturities or unexpected cash outflows. There is concern over asset-liability maturity mismatches as Suhyup Junganghoe’s funding maturities are concentrated in specific periods and bonds are disposed of prematurely due to deposit outflows, but the response to sudden deposit outflows was found to be insufficient.
The inspection also included a recommendation to improve the mandatory leave system to strengthen internal controls. According to internal regulations, employees handling tasks vulnerable to accidents must be subject to unannounced mandatory leave of up to 5 days at least once a year, but the FSS inspection revealed that since 2014, neither the central federation nor all 91 cooperatives have implemented mandatory leave.
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