[Exclusive] 6 Billion Won Loan for Buildings Without Occupancy Approval?

Five Saemaeul Geumgo Branches in Gwangju and Jeonnam Grant Joint Loans Outside Their Jurisdiction
Controversy Over Collateral Building's Mortgage and Occupation of Third-Party Land
Tens of Billions in Losses and Breach of Trust Allegations, Yet No Punishment for Those Responsible
Federation States: "No Practical Benefit in Legal Action... To Be Resolved Internally"

The suspicion of faulty loans that surfaced during the chairman election process at Yeonggwang Saemaeul Geumgo in Jeonnam is now spreading to other credit unions in the Gwangju and Jeonnam regions. This is due to numerous questionable aspects regarding the timing and background of the loans.

The Saemaeul Geumgo Federation, which should be taking the lead in uncovering the causes and various suspicions, is instead responding passively, which is fueling further controversy.

According to an Asia Economy investigation on the 13th, six credit unions?including Gwangju Wolsan Saemaeul Geumgo (as the lead institution), Gwangju Donggwangju Saemaeul Geumgo, Dongmyeong Saemaeul Geumgo, Yeonggwang Saemaeul Geumgo, Yeomsan Saemaeul Geumgo, and Cheonan Geumcheon Saemaeul Geumgo in Chungnam?executed a joint loan of approximately 5.97 billion KRW (around 5.97 billion won) in October 2018 for 16 plots (including an unfinished building at the time, appraised at about 7.86 billion KRW) located at 318 Seongjeong-dong, Seobuk-gu, Cheonan, Chungnam.

Specifically, Gwangju Wolsan Saemaeul Geumgo contributed 1.247 billion KRW, Donggwangju Saemaeul Geumgo 1.42 billion KRW, Dongmyeong Saemaeul Geumgo 800 million KRW, Yeonggwang Saemaeul Geumgo 2 billion KRW, Yeomsan Saemaeul Geumgo 340 million KRW, and Cheonan Geumcheon Saemaeul Geumgo 100 million KRW.

The problem is that despite the massive scale of the loan?nearly 6 billion KRW?the credit unions ignored relevant regulations and principles. At the time of the loan, one of the main collateral properties, a welfare business (nursing hospital) building, had not even received usage approval.

In particular, this building encroached on land owned by others and had received a court order for demolition, among other ongoing disputes. Furthermore, conflicts over construction costs between the developer and the contractor resulted in a lien being placed on the property.

Although some issues (such as usage approval) were resolved after the loans were disbursed, the development project ultimately failed, leaving the credit unions with enormous losses.

They hurriedly proceeded with an auction of the land and building, but each credit union suffered losses of nearly 80% (with the loss ratio being the same for all due to joint distribution). This was the result of granting loans with uncertain collateral, leading to criticism that the process was flawed from the start.

Typically, Saemaeul Geumgo conducts on-site inspections (to assess utility value) before executing loans, checks building structure, current usage and management, purpose, debtor credit information, loan status, and also verifies the debtor's delinquency status, income level, and repayment ability.

However, at the time, these credit unions reportedly skipped or performed many of these procedures only superficially. Some credit unions even raised concerns about the risk of faulty loans, but it is said that chairmen and general managers pressured staff to push the loans through.

Furthermore, Cheonan Geumcheon Saemaeul Geumgo, which was within the jurisdiction of the project site, contributed only 100 million KRW and withdrew it about a year after the loan was executed. It is known that, in principle, Saemaeul Geumgo is prohibited from lending outside its jurisdiction.

Exceptionally, joint loans are allowed if the local credit union is included, but it is highly unusual for the funds to be withdrawn within about a year, as in this case. This has raised suspicions that the joint loan format was merely a formality for so-called "collusive loans" among the credit unions.

This issue reportedly came to light during an investigation by the Ministry of the Interior and Safety, the supervising ministry, as part of a nationwide probe into faulty loans at Saemaeul Geumgo in 2023.

Following the Ministry's request for a detailed investigation, the Saemaeul Geumgo Federation (hereafter referred to as the Federation) immediately began an internal audit and confirmed serious defects in the loan. The Federation then sent a comprehensive audit report to the involved credit unions, demanding corrective action.

The report reportedly included requests for measures to recover the losses and to pursue legal action against those responsible for the faulty loans. However, the Federation's accountability ended there. Even after several years, it has not actually checked or verified how the five credit unions are addressing the issue or whether the losses have been recovered.

No requests have been made to investigative agencies, such as the police, to verify the legality of the faulty loans. While the Federation hesitated, A, the general manager at Wolsan Saemaeul Geumgo who led the loan, left the credit union after being legally punished for another illegal loan, and another credit union official reportedly took their own life for similar reasons a few years ago. At the remaining credit unions, the employees who handled the loans at the time are said to still be working there.

At least, the current chairman of Yeonggwang Saemaeul Geumgo filed a police complaint against a staff member who approved the loan for charges such as breach of trust, but the other credit unions have turned a blind eye. The damage from the faulty loans is being entirely borne by the members of the affected credit unions. Last year, Gwangju Wolsan Saemaeul Geumgo was subject to a "management improvement request" in a management evaluation, indicating a serious management crisis.

Cases where the net capital ratio is below 4% in the capital adequacy section, or where capital adequacy or asset soundness is rated grade 4 or lower, or where major financial accidents or bad loans occur, are subject to management improvement recommendations.

Regarding this, an official from the Saemaeul Geumgo Federation stated, "Upon confirming the facts, it seems that the credit unions did indeed grant the loans in violation of regulations," but added, "The Federation determined that there was little practical benefit in intervening in this matter. We concluded that it was appropriate for each credit union to resolve the issue on its own."