Saemaeul Geumgo Experiences 'July Bank Run'... 1H Net Loss of 123.6 Billion KRW

Post-Bank Run Earnings Report
Poor Performance from Jan to Jun but Positive Growth from Jul
Government: "Worsened by Rate Hikes and Delinquencies, Improvement Expected in H2"

Han Chang-seop, Vice Minister of the Ministry of the Interior and Safety, visited the Saemaeul Geumgo Gyeohigung Branch in Gyo-nam-dong, Jongno-gu, Seoul on the 6th for an on-site inspection of Saemaeul Geumgo and opened a regular savings account passbook. Photo by Yoon Dong-joo doso7@

Sae-maeul Geumgo, which experienced a 'bank run' crisis in early July due to non-performing real estate project financing (PF) loans by some regional credit unions, recorded a net loss of 123.6 billion KRW in the first half of the year (January to June). On the 31st, government departments including the Ministry of the Interior and Safety and the Financial Services Commission announced the 'Sae-maeul Geumgo 2023 First Half Operating Performance,' summarizing the performance of 1,293 Sae-maeul Geumgo nationwide.

Performance and Delinquency Worsened Compared to Last Year

Kim Kwang-hwi, Regional Economic Support Officer at the Ministry of the Interior and Safety, stated, "The net loss was caused by increased interest expenses due to rising interest rates and the burden of increased loan loss provisions due to loan delinquencies," adding, "In the second half, it is expected to turn to net profit due to reduced interest expenses and strengthened delinquency rate management." The net profit for July has already turned positive with an increase of 24.7 billion KRW.

Total assets stood at 290.7 trillion KRW at the end of June, an increase of 6.5 trillion KRW (2.3%) compared to the end of last year. Total deposits also rose by 8 trillion KRW (3.2%) to 259.4 trillion KRW compared to the end of last year. Total loans decreased by 2.5% (5.1 trillion KRW) to 196.5 trillion KRW compared to the end of last year. Corporate loans (111.4 trillion KRW) increased by 800 billion KRW, but household loans (85.1 trillion KRW) decreased by 5.9 trillion KRW.

The delinquency rate increased. The overall delinquency rate was 5.41%, up 1.82 percentage points from the end of last year. The corporate loan delinquency rate was 8.34%, and the household loan delinquency rate was 1.57%, rising 2.73 percentage points and 0.42 percentage points respectively compared to the end of the previous year.

On the 6th, officials are posting notices related to deposit protection at the MG Saemaeul Geumgo Gyeonghuigung Branch in Jongno-gu, Seoul. Photo by Dongju Yoon doso7@

The net capital ratio was recorded at 8.29%. Although it slightly decreased by 0.27 percentage points compared to the end of last year, it remains well above the minimum regulatory ratio (4.00% or higher).

The government explained that the deposit situation at Sae-maeul Geumgo has stabilized. Shin Jin-chang, Director of the Financial Industry Bureau at the Financial Services Commission, said, "There were reports that 17 trillion KRW in deposits were withdrawn in July, but since August, a net inflow trend has continued, firmly stabilizing the situation," adding, "The situation now is completely different from the deposit withdrawal crisis in July." He also added, "There is an analysis that the portion of funds raised by increasing deposit interest rates in the fourth quarter of last year was significantly resolved during the withdrawal process, which alleviated the July performance."

He also stated that the impact of Sae-maeul Geumgo's bond sales on the bond market during the deposit withdrawal crisis in July was minimal. Director Shin explained, "Bond sales and purchases are routine activities," and "During the Sae-maeul Geumgo Central Association's response to the deposit withdrawal crisis, there was no unusual increase in bond market volatility or bond yields."

Soundness and Profitability Expected to Improve in the Second Half

Sae-maeul Geumgo experienced the bank run crisis because it increased corporate loans such as real estate collateral and managed land trust loans to secure profitability during the low-interest and real estate boom periods. Officer Kim said, "While playing an active role as a market fund supplier, it is true that more relaxed regulations were applied compared to other mutual finance sectors during this process."

He continued, "With rising interest rates and a real estate downturn causing increased delinquency rates in the financial sector since last year, the delinquency rate at credit unions also rose, mainly in corporate loans, leading to some adjustment in soundness indicators in the first half of this year compared to last year," adding, "However, as a result of loan regulations and delinquency rate management, the increase in corporate loans and delinquency rates has slowed, and soundness and profitability are expected to improve in the second half."

[Image source=Yonhap News]

First, delinquency management will be promoted to normalize credit unions with higher-than-normal delinquency levels on already executed loans. In the second half of this year, the sale of delinquent loans by credit unions will be pursued with a target of up to 3 trillion KRW, and write-offs of delinquent loans will also be encouraged. Up to 1 trillion KRW can be sold to MCI Loan, a subsidiary of the Central Association, and up to 2 trillion KRW to KAMCO.

For borrowers capable of rehabilitation, a temporary debt adjustment program will be utilized. Normalization of business sites related to corporate loans will be supported through voluntary agreements with financial institutions and internal creditor groups. Two cases (79 billion KRW) were supported under the financial sector PF creditor group agreement, and 14 cases (469.2 billion KRW) under the credit union's own creditor group voluntary agreement.

From Now On, Corporate Loans by Credit Unions Will Only Be Possible When Linked with the Central Association

For delinquent business sites, compliance with delinquency resolution plans will be checked regularly, and for normal business sites, monthly business evaluations will be conducted to require additional loan loss provisions in case of business delays or stoppages.

Additionally, growth focused on external scale through corporate loans will be discouraged. Officer Kim said, "Until now, credit unions alone could handle large corporate loans, but from now on, this will be prohibited and only allowed when linked with the Central Association," adding, "To this end, the Central Association will strengthen its loan review and supervision functions through organizational restructuring and expansion of professional personnel." Since regulatory evasion by credit unions is expected, the actual status of indirect loans and soundness management will be regularly inspected.

Furthermore, to prevent a sharp contraction in fund supply and secure long-term profitability, the scope of sound loans such as housing purchase loan guarantee products will be expanded in consultation with related agencies. To enhance loss absorption capacity, the loan loss provision ratio for real estate and construction industry corporate loans will be raised to 130%.

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