{"id":2202116,"date":"2023-08-30T17:00:51","date_gmt":"2023-08-30T08:00:51","guid":{"rendered":"https:\/\/koreapro.org\/?p=2202116"},"modified":"2023-08-31T20:56:43","modified_gmt":"2023-08-31T11:56:43","slug":"how-a-south-korean-creditors-troubles-put-rok-financial-stability-at-risk","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2023\/08\/how-a-south-korean-creditors-troubles-put-rok-financial-stability-at-risk\/","title":{"rendered":"How a South Korean creditor\u2019s troubles put ROK financial stability at risk"},"content":{"rendered":"
South Korea\u2019s financial landscape faces a looming crisis as the Korean Federation of Community Credit Cooperatives, more commonly known as Saemaul Geumgo, grapples with an escalating financial predicament due to its <\/span>overexposure to the real estate market<\/span><\/a> and its decentralized organizational structure.<\/span><\/p>\n Saemaul Geumgo, a mutual credit institution, faces soaring delinquency rates and the specter of bank runs despite the organization\u2019s vast assets and user base, and concerns are rising not only about the immediate threats to the company\u2019s stability but also the potential aftershocks across South Korea\u2019s financial ecosystem.\u00a0<\/span><\/p>\n Saemaul Geumgo lures many depositors by offering <\/span>marginally higher deposit interest rates<\/span><\/a> than banks. As a result, it commands a total of $211.4 billion (<\/span>280 trillion won<\/span><\/a>) in assets, nearly as much as the nation\u2019s seventh-largest bank. The cooperative also serves a robust user base of more than <\/span>22 million people<\/span><\/a>.<\/span><\/p>\n Its organizational system, however, sets it apart from many of its peers. While it operates a central headquarters, its numerous local branches act as <\/span>distinct legal entities<\/span><\/a> in a decentralized setup. To give context, Saemaul Geumgo has <\/span>3,260 regional offices nationwide<\/span><\/a>, surpassing the <\/span>2,873 combined branches<\/span><\/a> of South Korea\u2019s top four banks: Kookmin Bank, Woori Bank, Shinhan Bank and Hana Bank.<\/span><\/p>\n Among these branches, 1,344 are registered as <\/span>independent corporations<\/span><\/a>. This structure contributed to a bank run in early July when some branches\u2019 risky lending practices came to light.<\/span><\/p>\n Until recently, buoyed by a real estate boom, many Saemaul Geumgo branches heavily backed project financing tied to real estate development. But when South Korea\u2019s central bank started <\/span>hiking interest rates<\/span><\/a> in 2022, the real estate sector slipped into a downturn, and branches that had over-invested in real estate development confronted dire financial strains.<\/span><\/p>\n South Korea\u2019s house prices recorded their <\/span>first monthly increase<\/span><\/a> in July since May 2022, with a slight uptick of 0.03%, following 13 months of declining values. This news likely provided some reprieve for Saemaul Geumgo.\u00a0<\/span><\/p>\n However, while this growth comes on the heels of <\/span>policy shifts<\/span><\/a> by the government earlier this year to support the housing market, simultaneous <\/span>increases in household debt<\/span><\/a> suggest that the market may not be poised for a strong rebound.<\/span><\/p>\n In addition, despite its size and significance, Saemaul Geumgo falls under the purview of the Ministry of Interior, a deviation from the usual practice where the Financial Services Commission (FSC) monitors financial institutions.<\/span><\/p>\n This strain manifests starkly in the numbers: Saemaul Geumgo\u2019s delinquency rate shot up from <\/span>1.9%<\/span><\/a> at the end of 2021 to <\/span>4%<\/span><\/a> by the end of the following year, further increasing to <\/span>6.4%<\/span><\/a> by June 2023. Around 100 branches are now in a precarious position, with some in the metropolitan area grappling with delinquency rates as high as <\/span>20 to 30%<\/span><\/a>. Dozens of branches nationwide face delinquency rates <\/span>exceeding 10%<\/span><\/a>.<\/span><\/p>\n South Korean <\/span>media coverage<\/span><\/a> on July 4 spotlighted Saemaul Geumgo\u2019s looming challenges. By the next day, <\/span>reports<\/span><\/a> emerged of a near-bankruptcy of a branch in Namyangju City, which had merged with a neighboring Saemaul Geumgo branch. As this news proliferated, widespread speculation intensified fears and <\/span>spurred a bank run<\/span><\/a>.<\/span><\/p>\n