[Slow Reform at Saemaeul Geumgo] ③ "Supervisory Authority Should Be Transferred to the Financial Services Commission"

Bill Under Review by Political Affairs and Administrative Safety Committees
Administrative Safety Committee Also Moves to Propose Legislation
"Financial Soundness Must Be Supervised and Financial Accidents Prevented"

Editor's NoteTwo years ago, when the issue of poor-quality loans surfaced, consumers who were anxious rushed to Saemaeul Geumgo. Although innovative measures are being proposed, improper and illegal 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 highlighting the recurring loan issues at Saemaeul Geumgo and exploring strategies for Saemaeul Geumgo to undergo a 'complete transformation.'

With the passage of the Management Innovation Act and other measures, numerous plans are emerging for Saemaeul Geumgo to be reborn. However, as improper loans and financial accidents continue to recur, voices are growing louder to transfer supervisory authority from the Ministry of the Interior and Safety to the Financial Services Commission and the Financial Supervisory Service, which specialize in finance. The bill is currently under review by the National Assembly's Political Affairs Committee, which oversees the Financial Services Commission, and a similar bill is being prepared by the Administrative Safety Committee under the Ministry of the Interior and Safety.

According to the National Assembly's legislative information system on the 5th, the 'Partial Amendment to the Saemaeul Geumgo Act' bills, each introduced by Democratic Party lawmakers Yoon Jun-byeong and Yoo Dong-su, were reviewed by the Administrative Safety Committee. The core of these bills is to allow the Financial Services Commission to directly supervise and issue orders regarding Saemaeul Geumgo's credit and mutual aid businesses, or to permit the Financial Supervisory Service to conduct inspections. The difference between the two bills is that Yoo's bill assigns both credit and mutual aid businesses to the Financial Services Commission, while Yoon's bill assigns only the credit business. Yoo also plans to introduce a provision allowing fines to be imposed if a Geumgo or the Saemaeul Geumgo Central Association refuses, obstructs, or evades inspections by the supervisory authority. Yoon is also pushing to elevate matters related to Saemaeul Geumgo's accounting and settlement from enforcement ordinances to laws.

Among mutual finance institutions, Saemaeul Geumgo is the only one whose credit business is not supervised by the Financial Services Commission. Nonghyup, Suhyup, the Korea Forest Cooperative, and Shinhan Credit Union are all supervised and inspected by the Financial Services Commission and the Financial Supervisory Service. In the cases of Nonghyup and Shinhan Credit Union, the mutual aid business is also overseen by these financial authorities. However, Saemaeul Geumgo's credit and mutual aid businesses are both managed and supervised by the Ministry of the Interior and Safety. Therefore, there is an argument that financial and supervisory authorities, which have expertise in overseeing financial institutions, should take charge to contribute to financial and management stability.

The deterioration of Saemaeul Geumgo's financial soundness is also a key issue related to the transfer of supervisory authority. Since the 2023 bank run incident, Saemaeul Geumgo's delinquency rate has remained higher than that of other mutual finance institutions. According to the Ministry of the Interior and Safety and the Financial Supervisory Service, as of June last year, Saemaeul Geumgo's delinquency rate was 7.24%. This is higher than Shinhan Credit Union (6.25%), Nonghyup (3.65%), Suhyup (6.08%), and the Korea Forest Cooperative (5.63%) as of June last year. Specifically, Saemaeul Geumgo recorded delinquency rates of 3.59% at the end of 2022, 5.41% in June 2023, and 5.07% at the end of 2023. This underscores the need for financial authorities to conduct continuous and direct supervision and manage financial conditions such as delinquency rates.

Criticism that the Ministry of the Interior and Safety lacks the capacity to manage or supervise financial institutions has long existed. As a countermeasure, last year the Ministry of the Interior and Safety and the Financial Services Commission signed a 'Memorandum of Understanding to Strengthen the Supervisory Cooperation System for Saemaeul Geumgo's Soundness.' The Ministry of the Interior and Safety agreed to set management soundness standards for Geumgo at a level comparable to other mutual finance institutions through consultation with the Financial Services Commission. The Financial Services Commission agreed to receive information necessary for ongoing supervision from the Ministry of the Interior and Safety and to mutually consult on inspection plans and follow-up measures based on inspection results. However, it is known that the number of personnel in charge within the Ministry of the Interior and Safety is about 10, which is small compared to the thousands of regional Geumgo branches.

Similar movements are also occurring in the standing committees of the National Assembly overseeing the Ministry of the Interior and Safety. Democratic Party lawmaker Park Jeong-hyun is preparing to submit a partial amendment to the Saemaeul Geumgo Act. Already, 13 lawmakers including Park have expressed support for the bill. The goal of this amendment is also to transfer credit and mutual aid businesses to financial authorities. Park stated, "As the ratio of non-performing loans increases, about 430 regional Geumgo branches have reported net losses, leading to criticism that financial soundness management is inadequate," and added, "It has also been pointed out that reckless collateral loans and excessive lending have exacerbated nationwide damage caused by rental fraud," explaining the reasons for the proposal.

Meanwhile, regarding the transfer of supervisory authority, the Ministry of the Interior and Safety and the Financial Services Commission stated in a National Assembly review report, "At present, it is necessary to focus on strengthening the internal management and supervision of Saemaeul Geumgo, and the issue of transferring supervisory authority requires careful consideration."