Possibility of Credit Union Act Amendment Passing in National Assembly... Rising Opposition from Financial Sector (Comprehensive)

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[Asia Economy Reporter Kim Min-young] As the amendment to the Credit Union Act, which expands the business area of credit unions, is increasingly likely to pass the National Assembly, opposition voices are growing in the financial sector. This is because the enlargement of credit unions could lead to monopolization and excessive competition among cooperatives, as well as violate fairness with other financial institutions. With competing financial companies and financial authorities strongly opposing it, there are growing calls to significantly reduce the tax benefits currently enjoyed by credit unions if the bill passes.

A senior official from the Financial Services Commission expressed concern on the 12th, stating, "If the amendment to the Credit Union Act passes, it will disrupt fairness with other financial sectors and may potentially cause insolvency." He added, "Cooperatives are based on close living areas and community bonds, receiving various benefits including tax advantages, but if expanded to a wider area, it would not align with the definitions and purposes stipulated in the Credit Union Act," clearly expressing opposition.

The amendment to the Credit Union Act, which expands the current business area from the city, county, and district level to 10 nationwide regions, is currently pending in the National Assembly's Legislation and Judiciary Committee. This amendment unanimously passed the National Assembly's Political Affairs Committee on March 5 and was discussed once at the Judiciary Committee meeting on the 29th of last month. The core of the amendment is to broaden the common bond (business area), which is the basis for cooperative establishment and membership, from the current 226 cities, counties, and districts to 10 nationwide regions. The 10 regions are divided into Seoul, Incheon-Gyeonggi, Busan-Ulsan-Gyeongnam, Daegu-Gyeongbuk, Daejeon-Chungnam, Gwangju-Jeonnam, Chungbuk, Jeonbuk, Gangwon, and Jeju. For example, a credit union cooperative located in Jung-gu, Seoul, which currently can only recruit members and conduct deposit and loan business within Jung-gu, would be able to operate throughout Seoul if the amendment is implemented.

However, since the business areas overlap with those of savings banks and other mutual financial institutions such as Saemaeul Geumgo and the Fisheries Cooperatives are also likely to push for business area expansion, the authorities are highly concerned. In particular, they point out that fierce competition among credit union cooperatives could lead to the enlargement and monopolization of some cooperatives and cause insolvency among smaller cooperatives.

In fact, savings banks operate nationwide divided into six regions including Seoul and Incheon-Gyeonggi with 79 companies. The savings bank industry argues that if the approximately 880 credit unions rapidly grow within their regions using the 40 million KRW tax exemption as a "weapon," they will have no way to compete. Credit union members only pay a special rural tax (1.4% annually) on deposits and savings up to 30 million KRW, whereas deposits and savings in savings banks are subject to a 15.4% tax on interest income. They also receive tax exemption benefits on investment funds up to 10 million KRW. This is why savings banks argue that the benefits for credit unions should be reduced.

The savings bank industry recently submitted a letter opposing the amendment to the National Assembly. A savings bank official criticized, "The attempt by credit unions to expand their business to non-members is a surrender of differentiation from private for-profit financial companies and a denial of their own existence."

Other mutual financial institutions also raised their voices, calling the amendment a "special privilege law for credit unions." Saemaeul Geumgo, Fisheries Cooperatives, Nonghyup, and the Korea Forest Cooperatives have threatened that if the amendment passes, they will also push for business area expansion in the 21st National Assembly.

Inside and outside the financial sector, there are also remarks that credit unions are pushing the law through by leveraging their massive membership organization. As of the end of March, credit unions consist of 883 cooperatives and 6.36 million members. Their total assets amount to 104 trillion KRW.

This content was produced with the assistance of AI translation services.