Preventing Overheating in Deposit Attraction... Daily Monitoring of Mutual Finance Liquidity Starting Next Month

Expansion of Central Association Loan Limits and Liquidity Support
Discussion on Governance and Internal Control Improvement Measures
Plan to Establish 'Mutual Finance Development Plan' Within the Year

In the second half of this year, the financial authorities have decided to activate a monitoring system in mid-October to check deposit and interest rate trends in order to prevent excessive competition for fund attraction among mutual finance sectors such as Saemaeul Geumgo, Nonghyup, Shinhyup, and Suhyup.

On the 26th, the Financial Services Commission and related mutual finance departments and institutions held the '3rd Mutual Finance Policy Council' at the Korea Federation of Banks in Jung-gu, Seoul, where they reviewed recent trends in fund procurement and management in the mutual finance sector and announced these measures. This is intended to closely manage and supervise the situation as concerns arise that the competition for funds among sectors may overheat due to the maturity of high-interest deposits sold in the second half of last year.

Discussions were also held on liquidity support measures. In case an individual cooperative faces a liquidity crisis, the central association will supply liquidity smoothly and promptly by expanding loan limits. Currently, Nonghyup and Suhyup allow individual cooperatives to borrow up to five times their capital from the central association, whereas Shinhyup allows borrowing up to three times their capital or 15% of total assets, whichever is greater.

However, the authorities emphasized that, considering recent deposit trends, the liquidity level in the current mutual finance sector is stable.

There was also a suggestion to rationalize soundness regulations. It was discussed to raise the net capital ratio regulatory standards considering capital disparities among cooperatives and to strengthen regulations differentially for large cooperatives above a certain scale. Additionally, to enhance the effectiveness of joint loan regulations, it was mentioned to formalize a model code limiting joint loan caps to 15% of total credit as a supervisory regulation and to mandate prior review by the central association when handling joint loans above a certain scale.

Furthermore, to strengthen consumer protection in mutual finance, opinions were raised that Saemaeul Geumgo, Nonghyup, Suhyup, and the Korea Forest Cooperative should also establish consumer protection systems. Currently, consumer rights protections under the Financial Consumer Protection Act, such as the right to withdraw loans, the right to terminate illegal contracts, and the right to access information, apply only to Shinhyup. It was emphasized that voluntary implementation by other sectors should be encouraged before legislation.

There was also consensus that governance and internal control improvements are urgent amid the rapid growth of the mutual finance sector. To this end, opinions were raised to limit the long-term tenure of cooperative heads (chairpersons) and to expand the mandatory appointment of full-time directors and secretaries in cooperatives. It was also stressed that internal control standards within cooperatives should be established and the appointment of compliance officers should be mandated to prevent financial accidents.

Related mutual finance departments and institutions will form an expert and sector-specific 'Mutual Finance Comprehensive System Improvement Task Force (TF)' to identify additional tasks, review details, and finalize them, and will announce a joint government-wide 'Comprehensive Development Plan for the Mutual Finance Industry' within the year.

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