Credit union savings safe, contingency plans ready: gov't

Finance

Published: 06 Jul. 2023, 18:18

Credit union savings safe, contingency plans ready: gov't

A notice assuring the safety of deposit and installment savings is posted at a Korean Federation of Community Credit Cooperatives branch in Jongno District, central Seoul, on Thursday. [NEWS1]

A pan-government response group was formed Thursday to ease jitters over a possible collapse of a major credit union amid a spiraling delinquency rate on its loans.

The joint task force will implement protective measures to protect deposits at the Korean Federation of Community Credit Cooperatives (KFCC).

The measures target branches receiving loans up to 100 billion won ($76.6 million) from the credit cooperative union, branches transferring funds to one another to add liquidity and branches receiving borrowings from public agencies, other financial firms and the government.

For those who have already withdrawn their savings, the government is also reportedly reviewing measures to offer them the same interest rates and tax benefits as the closed savings account should they choose to deposit the withdrawn money again.

Officials from the Ministry of the Interior and Safety, Ministry of Economy and Finance, Financial Services Commission, Financial Supervisory Service and the Bank of Korea announced the joint task force’s launch during a press briefing held at the government complex in central Seoul Thursday.

“Like other financial institutions, deposits under 50 million won are protected under the Community Credit Cooperatives Act,” Vice Interior Minister Han Chang-seob said. "All deposits will be guaranteed even if some branches are merged with others, and the branch initiating the merger will pay the principal and interest for the merged branch[es]."

KFCC has cash assets worth 77.3 trillion won, or approximately 30 percent of current deposit and installment savings, and 2.6 trillion won reserved for depositor protection, according to the vice minister.

“We are fully aware of the impact on the KFCC’s financial health amid recent hikes in the delinquency rate, but its delinquency rate is still fully manageable,” Han stressed.

Concerns over the KFCC's financial stability have risen in recent months due to the credit cooperative's unusually-high delinquency rate.

Of the KFCC’s total loan amount of 196.8 trillion won, 12.2 trillion won, or 6.18 percent, was overdue as of June 29, Interior Ministry data showed Tuesday.

This figure was up 2.59 percentage points from the end of last year and was more than 16 times the delinquency rate of commercial banks in April, which was at its highest point in 30 months at 0.37 percent, according to the financial regulator's data.

Some tense depositors made runs on the credit union’s branches to withdraw their deposits after hearing the news earlier this week that the Interior Ministry plans to overhaul 100 of its branches with a high percentage of overdue loans and push for mergers and acquisitions to scrape out weak ones starting next week.

The ministry said Tuesday that it aims to lower KFCC’s delinquency rate to the 4 percent range by managing faulty branches and actively disposing of non-performing loans.

BY SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]