[Exclusive] "Bank for the People" in Ruins... 15 Million Won Merit Payments and Pure Gold for Retiring Executives

Special Merit Payments and Commemorative Gifts Awarded Despite Insolvent Mergers
Rising Concerns Over Moral Hazard
Debate Over Transfer of Supervisory Authority Reignites

#In January of this year, the chairman of a Saemaul Geumgo (community credit cooperative) in North Gyeongsang Province, which was merged due to insolvency, received a special retirement merit payment of approximately 15 million won. This Saemaul Geumgo had a delinquency rate exceeding 10% and was in a state of capital erosion, with a Bank for International Settlements (BIS) capital adequacy ratio of 0% or less. Despite receiving a grade 4 in the management status assessment, classifying it as a 'poor-performing cooperative,' both the directors and auditors of this Saemaul Geumgo also received retirement gifts worth about 1.45 million won each, totaling approximately 16 million won.

It has been confirmed that Saemaul Geumgo executives continued to receive retirement merit payments and commemorative gifts even after their cooperatives were merged due to insolvency. There are concerns that rewarding executives responsible for poor management could lead to moral hazard.

Executives Received Retirement Merit Payments Worth Tens of Millions of Won Despite Poor Management

According to data from the office of Heo Young, a member of the National Assembly's Political Affairs Committee, received from Saemaul Geumgo on October 29, 14 out of 28 Saemaul Geumgo branches that were merged due to insolvency over the past three years-from 2022 to August this year-provided special retirement merit payments or commemorative gifts to their executives, including the chairman, directors, and auditors.

Chairmen of insolvent cooperatives received retirement merit payments ranging from several million won to tens of millions of won, while directors and auditors each received commemorative gifts worth several million won. These gifts included pure gold and plaques of appreciation.

One Saemaul Geumgo in Busan, after being merged due to insolvency, paid the chairman a merit payment of about 6.3 million won, and also gave four directors and two auditors special commemorative gifts worth 1.24 million won each, totaling about 7.4 million won. There was also an insolvent cooperative that, while not paying a merit payment to the chairman, gave commemorative gifts worth 3 million won each to a total of 10 directors and auditors, amounting to about 30 million won in total.

In the case of a Saemaul Geumgo in Daegu, after being merged due to insolvency, the chairman received a merit payment worth 2.55 million won, and three directors and one auditor each received commemorative gifts worth 1.36 million won, totaling 5.44 million won. This Saemaul Geumgo had a delinquency rate exceeding 17% and received a grade 5 in the management status assessment.

Ongoing Insolvency and Internal Control Issues... Calls to Consolidate Supervisory Authority Over Saemaul Geumgo Resurface

According to Heo Young's office, there have been 32 Saemaul Geumgo branches merged over the past three years, from 2022 to August this year. Of these, 28 were merged due to insolvency. Among them, 16 were in a state of capital erosion, with a BIS capital adequacy ratio of 0% or less. In addition, 10 out of the 32 branches only notified members of the merger meetings by posting building notices, sparking controversy over so-called 'blind mergers.' (See The Asia Business Daily's exclusive report on October 9.)

The Saemaul Geumgo merger guidelines do not include regulations regarding customer notification. However, the guidelines contain detailed provisions on merit payments and commemorative gifts for executives. According to these guidelines, executives of cooperatives designated as insolvent and merged may receive special retirement merit payments or commemorative gifts up to 50% of the specified amount.

Regarding this, Heo Young stated, "It is questionable what special merits the executives of dissolved insolvent cooperatives have," and pointed out, "Saemaul Geumgo must reform its organizational culture and internal controls to meet public expectations."

Meanwhile, with ongoing insolvency and internal control issues at Saemaul Geumgo, there are renewed calls to transfer supervisory authority from the Ministry of the Interior and Safety to financial authorities. On October 27, Lee Chanjin, Governor of the Financial Supervisory Service, stated during a National Assembly Political Affairs Committee audit, "One-third of Saemaul Geumgo branches are in a situation where consolidation or closure is necessary," expressing agreement with the need to consolidate supervisory authority.