[Reporter’s Notebook] The Ministry of the Interior and Safety Must Relinquish Supervisory Authority Over Saemaeul Geumgo

Unfair Loans Ignoring Regulations: 403.3 Billion KRW Last Year
Ministry of the Interior and Safety’s Oversight Rendered Ineffective

"Due to disciplinary cases involving individual credit unions, there are concerns about negative impacts on all Saemaeul Geumgo, so we kindly ask that this material be used only for legislative activities." The Ministry of the Interior and Safety, which supervises Saemaeul Geumgo, added this remark when sending data related to financial accidents and sanctions. It appears that the Ministry feared this information being reported in the media. What exactly were they afraid of?

Looking at the scale of financial accidents such as embezzlement or breach of trust at Saemaeul Geumgo, the amount over five years is about 40.4 billion KRW, which is less than the embezzlement amounts of several hundred billion KRW committed by the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) or regional banks. The number of sanctions imposed by the Saemaeul Geumgo Central Association on individual credit unions increased by only 27% compared to 2023.

However, the story is different when looking at the status of loans exceeding limits. Last year, the amount of loans exceeding the individual borrower limit was about 403.3 billion KRW, roughly twice the total amount over the past four years combined. This figure suggests that the regulations designed to prevent excessive lending to a single borrower have effectively become meaningless. Compared to other mutual finance sectors, the situation is even more serious. As of August 2023, the total amount of loans violating regulations (exceeding individual borrower limits, employee loan limits, and non-member loan limits) in Nonghyup, Suhyup, and Shinhan Credit Unions was only 38.2 billion KRW. The highest recent amount of excess loans was in 2022 at Shinhan Credit Union (207.9 billion KRW), which is about half of last year’s excess loan amount at Saemaeul Geumgo. The Saemaeul Geumgo Central Association explained that the impact of bad real estate project financing (PF) was a factor, but criticism inevitably arises that the problem started with excessively large PF loans in the first place.

Unfair loans circumventing regulations have snowballed, directly causing harm to ordinary citizens. When executing interim payment loans, people trusted not the words of public institutions but the developer’s promise to "take responsibility" and deposited their deposits into the developer’s account. Even when the developer obtained loans by evading various loan regulations, the credit unions failed to properly detect this. The developer misappropriated the insufficient construction funds through this method and eventually halted construction due to lack of money. Prospective residents were left with debts and no homes, and the credit unions suffered losses amounting to hundreds of billions of KRW.

Ultimately, responsibility must be held by the Ministry of the Interior and Safety, which has supervisory authority. Over the past year, during which they declared tightening controls by creating an Innovation Promotion Team, one wonders if they focused more on avoiding supervision than on reflection. Supervisory authority should be transferred to the Financial Services Commission and the Financial Supervisory Service to strengthen financial soundness management and internal controls through their supervision and inspections. Saemaeul Geumgo, which emerged during Korea’s economic development process, has a long history and contributed to forming village communities and supporting regional finance. However, the current supervisory system inevitably hinders further progress. It is time to renew the trust not only of village communities but also of former Saemaeul Geumgo members and financial consumers.