Mutual Finance Sector Loan Delinquency Rate Surpasses 2%... Growing Concerns Over Soundness

Assemblyman Hong Seong-guk: "Continuous Monitoring and Proactive Preventive Measures by Financial Authorities Are Essential"

[Asia Economy Reporter Kangwook Cho] The delinquency rate on loans in the mutual finance sector has risen sharply this year. Concerns are emerging that the economic slowdown caused by the spread of the novel coronavirus disease (COVID-19) is beginning to affect the secondary financial sector.

According to data submitted by the Financial Supervisory Service to Hong Seong-guk, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, as of the end of June this year, the delinquency rate on loans in the mutual finance sector recorded 2.02%, up 0.31 percentage points compared to the end of 2019. Considering that the delinquency rate rose by 0.39 percentage points throughout last year, the increase up to June this year is quite steep.

As the global economy enters a downturn phase, the rising delinquency rate on loans in the mutual finance sector, a representative financial institution for ordinary citizens, indicates that the number of ordinary people struggling to repay loans is increasing. If the economic activity contraction caused by COVID-19 prolongs, there is a possibility that the delinquency rate will soar, necessitating continuous monitoring by financial authorities.

The Financial Supervisory Service stated that considering the mutual finance sector’s net capital ratio was at 8.04% as of the end of June, significantly exceeding the supervisory ratio of 2%, the delinquency rate of 2.02% is not at a level of great concern. However, it emphasized, “If the COVID-19 situation prolongs, there is concern about insolvency among cooperatives with small capital sizes, so we will strengthen monitoring of delinquency rate trends and guide the mutual finance sector to enhance its loss absorption capacity.”

Assemblyman Hong pointed out, “It is urgent for financial authorities to take preemptive preventive measures so that the asset soundness of the mutual finance sector, which has faithfully fulfilled its role as a financial institution for ordinary citizens, is not damaged by the COVID-19 crisis, thereby preventing increased anxiety among ordinary people.”

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