Shinhyup Central Association Faces Warnings of Weakened Internal Controls Due to Long-Term Assignment Practices

Shinhyup Faces Series of Loan Incidents
Some Executives Remain in Same Positions for Over Three Years
Controversy Over Effectiveness of Job Rotation System

It has been revealed that some executives at the Shinhyup Central Association have remained in the same positions for more than three years, fueling controversy over the effectiveness of the job rotation system. In particular, as loan-related incidents have occurred frequently at Shinhyup in recent years, there are growing concerns that the practice of long-term assignments is directly linked to weakened internal controls.

Shinhyup Central Association logo. Provided by Shinhyup Central Association

According to the financial industry on May 9, financial institutions generally operate job rotation systems to strengthen internal controls and prevent collusion within organizations. The Shinhyup Central Association also has its own job rotation system, which is based on a three-year principle. However, there is criticism that the effectiveness of this system is undermined as some executives maintain their positions for extended periods.

This personnel management practice raises concerns that it could hinder fair loan reviews and, furthermore, compromise the overall soundness of the organization. In fact, Shinhyup has recently seen a surge in delinquency rates as well as violations of real estate and construction loan limit regulations.

According to data submitted by the office of Oh Ki-hyung, a member of the Democratic Party of Korea, to the Financial Supervisory Service, as of the end of December 2024, 104 out of 886 Shinhyup cooperatives nationwide (12%) were found to have violated real estate and construction loan limit regulations. This is the highest figure among the four major mutual financial institutions, including Nonghyup, Suhyup, and the National Forestry Cooperative Federation, indicating that Shinhyup's internal control system is not functioning properly.

Experts point out that long-term tenure weakens the internal checks and balances within organizations and that personal connections or established practices can influence key decision-making processes, such as loan reviews.

This can lead to bad loans and ultimately result in harm to cooperative members. In fact, the increase in Shinhyup's delinquency rate and financial accidents is closely related to these structural problems, according to analysis.

A source in the financial sector stated, "Job rotation is a fundamental element of internal control. If a particular individual remains in the same position for several years, the internal checks and balances are inevitably weakened." The source added, "The frequent loan incidents and regulatory violations at Shinhyup in recent times are not unrelated to this issue."

A representative from the Shinhyup Central Association explained, "Job rotation is generally implemented every three years. However, it can be adjusted depending on the staffing situation or the need for business continuity at each cooperative." The representative added, "We do not believe that violations of loan limit regulations are directly related to whether or not job rotation is implemented."