[Exclusive] Saemaeul Geumgo Embezzlement and Breach of Trust of 40.4 Billion KRW Over 5 Years... Same Person's Excessive Loans Total 622.3 Billion KRW

[Saemaeul Geumgo's Slow Reform] ①
Financial accidents reached 2.98 billion KRW last year
Sanctions on individual branches rose from 73 to 93 cases
Same individual excess loans hit 403.3 billion KRW last year, highest in five years
"Real estate market downturn had a major impact"
Park Jeong-hyun: "Stronger sanctions are necessary"

Editor's NoteTwo years ago, when the issue of poor-quality loans surfaced, consumers who were anxious rushed to Saemaeul Geumgo. Although innovative measures have been proposed, improper and illicit loans are still frequent. As a financial institution that has been part of Korea's modernization history, there is a need to win consumers' trust anew and fulfill the original role of mutual finance. Asia Economy is running a series that highlights the recurring loan problems at Saemaeul Geumgo and contemplates what strategies Saemaeul Geumgo should adopt to undergo a 'complete transformation.'

It has been revealed that the scale of financial accidents that occurred over five years at more than 1,200 Saemaeul Geumgo nationwide amounts to 40.4 billion KRW. Last year, this figure increased more than fourfold compared to 2023. The total amount of loans exceeding the limit to the same individual or corporation over five years also reached 622.3 billion KRW. Last year, it was 403.3 billion KRW, the highest in five years. The Saemaeul Geumgo Central Association explained that these figures increased as they strengthened inspection and supervision systems, but many point out that this only revealed the poor practices accumulated from before.

According to the 'Saemaeul Geumgo Financial Accident Status' submitted by the Ministry of the Interior and Safety to the office of Park Jeong-hyun, a member of the National Assembly's Public Administration and Security Committee from the Democratic Party of Korea, the scale of financial accidents such as embezzlement and breach of trust at Saemaeul Geumgo from 2020 to 2024 amounts to 40.413 billion KRW. Last year, the amount was 2.976 billion KRW, more than four times the previous year's 724 million KRW. By year, 2020 had the largest amount at 17.196 billion KRW, followed by 2022 with 16.491 billion KRW, and 2021 with 3.026 billion KRW. The number of cases (including those under legal proceedings) was 21 in 2020 and 19 last year.

The number of sanctions imposed by the Saemaeul Geumgo Central Association on individual credit unions also increased. The total number of disclosed sanctions was 73 in 2023 but rose by about 27% to 93 last year. The number of sanctioned executives increased from 56 to 92, and employees from 151 to 266. Regionally, among 13 areas, sanctions increased in eight (Gyeonggi, Incheon, Daejeon-Sejong-Chungnam, Chungbuk, Ulsan-Gyeongnam, Daegu, Gwangju-Jeonnam, Jeonbuk). Gyeonggi had the highest number of sanctions at 14, followed by Daegu with 11, and Seoul and Ulsan-Gyeongnam with 9 each.

The statistics related to 'same individual loan limit,' which accounts for the largest portion of sanctions, also worsened. Last year alone, both the number of cases and the amount of loans exceeding the same individual loan limit (31 cases, 403.343 billion KRW) were the highest in five years. The amount of excess loans, which was 45.951 billion KRW in 2020, showed a downward trend but increased to 133.619 billion KRW in 2023 and reached its peak last year. The total amount over five years reached 622.322 billion KRW. The number of executives and employees disciplined related to this was also the highest in five years at 138 (37 executives and 101 employees). Employees in the Gyeonggi region (26) were the most disciplined, followed by Daegu (22) and Gyeongbuk (15).

The same individual loan limit is a regulation that restricts loans above a certain scale to individuals or corporations to prevent excessive loans to specific borrowers. According to Article 29, Paragraph 1 of the Saemaeul Geumgo Act, the same individual loan limit is based on the larger amount between 20% of equity capital or 1% of total assets at the end of the previous fiscal year. Specifically, it cannot exceed 5 billion KRW based on equity capital or 700 million KRW based on total assets.

The Saemaeul Geumgo Central Association explained that the increase in the number of sanctions resulted from the process of advancing and strengthening inspection and supervision capabilities. They stated that they have been continuously monitoring abnormal transactions within credit unions and conducting immediate inspections or increasing inspection personnel. Regarding loans exceeding the same individual limit, they mentioned the impact of project financing (PF) defaults due to the real estate market downturn. When asset or capital size decreases, the same individual loan limit also decreases, but when the maturity of already executed loans arrives, borrowers must repay the amount exceeding the reduced limit. However, many cases have been detected where borrowers failed to repay, resulting in excess loans.

The Central Association said, "Improving profitability is the highest priority, and measures such as work guides to prevent financial accidents are being prepared." In October last year, together with the Ministry of the Interior and Safety, the Central Association introduced the 'Saemaeul Geumgo Accident Prevention Work Guide.' This guide organizes items that executives and employees must check based on financial accident cases in four major areas over the past three years: loans, deposits and cash management, internal control and organizational management, and others.

However, there are opinions that the effectiveness of the measures poured out after the 2023 bank run (massive deposit withdrawals) crisis is insufficient. Representative Park said, "Although measures to strengthen the soundness of Saemaeul Geumgo have been proposed since last year, they seem to have little effect," and added, "Strong sanctions such as consolidating or expelling points where poor and illegal loans occur should be introduced."