Strengthened Internal Review for General Loans Over 1 Billion KRW
Loans Over 2 Billion KRW Reviewed by Central Association and Other Financial Institutions
Saemaeul Geumgo will implement a measure to cut the salary of the Central Association president by about 20% to accelerate management innovation. Reflecting criticism over the 'dividend feast' that occurred despite crises such as bank runs (massive deposit withdrawals), dividends will be restricted for insolvent Geumgos.
On the 3rd, the Ministry of the Interior and Safety announced that 40 out of 72 tasks (56%) of the Saemaeul Geumgo management innovation plan have been completed by this month. Previously, the Saemaeul Geumgo Management Innovation Committee, composed of the Ministry of the Interior and Safety, Saemaeul Geumgo Central Association, and the Financial Services Commission, prepared the 'Management Innovation Plan for Saemaeul Geumgo Reform' in November last year.
The salary cuts for the Central Association president and full-time directors included in the innovation plan are expected to be applied immediately through a board resolution this month. The annual salary of the Central Association president, which is about 650 million KRW, will be cut by more than 20% and adjusted to below 500 million KRW. For full-time executives, performance bonuses will not be paid until the management normalization evaluation is completed. The Ministry of the Interior and Safety explained that the performance bonus is about 20% or more of the annual income.
However, the announcement by the Ministry of the Interior and Safety on this day is a reduced figure compared to the originally proposed targets in the management innovation plan, which were a 23% cut for the Central Association president and a 28% cut for full-time directors. A Ministry official added, "It seems that the figure was reduced compared to last year's announcement as it reflects the rising inflation rate."
From next year, dividends will be restricted for loss-making Geumgos. Last year, Saemaeul Geumgo faced a bank run crisis amid suspicions of bad loans related to project financing (PF) loans and received government support, yet it paid dividends amounting to about 480 billion KRW, more than five times its net profit, causing controversy. The Ministry of the Interior and Safety is reviewing specific dividend restriction levels based on cases from other mutual finance sectors and plans to announce separately once the reform plan is finalized.
To prevent recurring 'bad loans,' internal and external controls on loans above a certain scale will also be strengthened. First, joint loans of 7 billion KRW or more will be subject to prior review by the Central Association, and joint loans of 20 billion KRW or more and all related loans will require linkage with the Central Association.
Regarding internal control, the scope of loan review by the loan review committee within the Geumgo will be strengthened from loans of 2 billion KRW or more to loans of 1 billion KRW or more. Two-stage loan reviews will be mandatory. For loans exceeding 2 billion KRW, a 'mutual review system' will be introduced to require review by other Geumgos and the Central Association, reinforcing external control. The expansion of reviews for loans over 1 billion KRW is expected to take place between July and August. Mutual reviews for loans exceeding 2 billion KRW will be temporarily applied from the second half of this year where possible, with full implementation after the system is established.
The Ministry of the Interior and Safety emphasized that the delinquency rate of Saemaeul Geumgo, which had risen somewhat earlier this year, has been stably managed since February. In the first half of this year alone, 1.8 trillion KRW of delinquent bonds were sold, a scale larger than that of other mutual finance sectors. An official said, "The exact delinquency rate cannot be disclosed immediately, but it has actually decreased compared to the end of February."
The Ministry also stated its intention to complete legislation for key innovation tasks such as 'governance reform' in the second half of the year. Innovation tasks like the single-term system for the Central Association president and the introduction of a professional management system require legal amendments. The Ministry of the Interior and Safety had proposed a bill in the last National Assembly, but it was discarded as the term of the 21st National Assembly ended this year.
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