'Birion Award' Saemaeul Geumgo, Supervisory Blind Spot... Even Central Association Cannot Control

Independent Corporation with Separate Chairman
Central Association Control Also Ineffective
Over 1,300 Regional Treasury Offices
Not Directly Regulated by Financial Authorities

[Asia Economy Reporter Kim Min-young] The approximately 1,300 regional Saemaeul Geumgo (Community Credit Cooperatives) have been marred by incidents and accidents, raising calls for strengthened management and supervision. Regional Geumgos are independent corporations with separate chairpersons holding actual authority, so the Saemaeul Geumgo Central Association, the federation of these cooperatives, cannot exert control down to the roots. Furthermore, financial authorities lack inspection powers, leading to serious moral hazards in supervisory blind spots.

According to the Saemaeul Geumgo Central Association on the 23rd, 18 cases of misconduct have been detected in regional Geumgos this year. The violations include embezzlement, misappropriation of funds, sexual harassment, and intentional non-registration of mortgage rights, among others.

An employee at a Geumgo in Chungcheongbuk-do was dismissed after being caught embezzling customers' deposits, savings, and loan funds from insurance contracts. This employee not only violated the Saemaeul Geumgo bylaws but also committed serious crimes such as forgery and alteration of private documents under criminal law and embezzlement in the course of duty. Another employee in Gyeongsangnam-do was also dismissed; this employee took out a secured loan under a family member's name but deliberately did not register a mortgage on the collateral. This was to prevent the Geumgo from exercising its collateral rights even if there was a default. The employee also unlawfully destroyed documents used in the crime, fearing exposure of the misconduct.

Another employee at a Geumgo in Chungbuk was dismissed for arbitrarily withdrawing money deposited in the Geumgo and issuing false deposit passbooks, violating the Financial Real Name Act. An employee in Busan, who was suspended, committed sexual harassment and workplace bullying, and also showed poor attendance, including unauthorized absence from work.

Other Geumgo executives and employees were disciplined for errors such as overvaluing collateral for loans either accidentally or intentionally, or executing loans with strong illegality.

The continuous incidents and accidents at Geumgos are due to the absence of a supervisory system that can closely monitor the cooperatives. Although there is a Geumgo Supervisory Committee under the Central Association, it is pointed out that there are limits to overseeing all Geumgos. The committee has about 140 employees.

In particular, the fact that it belongs to the Ministry of the Interior and Safety and is not directly controlled by financial authorities is cited as one reason for poor management. A joint inspection team dispatched from the Ministry of the Interior and Safety and financial authorities conducts checks on the Central Association departments once every two years. Regional Geumgos also undergo selective inspections annually, but realistically, the number of Geumgos is too large. A Central Association official explained, “The government joint inspection team (including 4-5 Central Association staff) inspects 30 to 40 Geumgos per year.” The Central Association stipulates that each Geumgo should be inspected once every two years, but even if the inspection team visits 40 Geumgos annually, it would take 32 years to conduct a full survey of all 1,300 Geumgos. In reality, the supervisory system for Geumgos is minimal.

Similar mutual finance sectors such as credit unions, fisheries cooperatives, and forestry cooperatives are regularly and irregularly inspected by the Financial Services Commission and the Financial Supervisory Service.

Recently, as seen in the case of Aegis Asset Management’s full loan on a Gangnam apartment, Geumgos appear to seriously disregard financial authorities’ loan regulations. Moreover, although the Central Association ordered seven Geumgos that provided loans totaling 27 billion won to Aegis to recover the loans, the regional Geumgos reportedly argued, “Since the loan was a business loan to the corporation (Aegis) secured by land, it does not violate the loan-to-value ratio (LTV) for housing mortgage loans.” They are not only violating government policy but also ignoring the Central Association’s order to recover the loans. The Central Association stated, “Besides the Aegis case, we have started an investigation into large loan cases to see if there are other violations of loan regulations.”

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