Saemaeul Geumgo Introduces Professional Management System... Expands Participation in FSC Inspections

Saemaeul Geumgo to Unveil 'Management Innovation Plan' on 14th
Governance Innovation through Establishment of CEO Position
Strengthening Soundness and Geumgo Supervision
Rapid Restructuring of Insolvent Geumgo...Improvement of Depositor Protection

Kim Seong-ryeol, Chairman of the Saemaeul Geumgo Management Innovation Advisory Committee, is holding a joint briefing on the Saemaeul Geumgo management innovation plan on the 14th at the Government Seoul Office in Jongno-gu, Seoul, with Choi Byung-kwan, Director General of Local Finance and Economy at the Ministry of the Interior and Safety, and Shin Jin-chang, Director General of the Financial Industry Bureau at the Financial Services Commission. Photo by Jo Yong-jun jun21@

Saemaeul Geumgo announced on the 14th that it will introduce a professional management system and strengthen supervision. The chairman of the central association will be reorganized into a CEO system, changing from the current renewable term to a single 4-year term. In addition, the Financial Supervisory Service and the Korea Deposit Insurance Corporation will also strengthen their inspection functions for Saemaeul Geumgo.

The Saemaeul Geumgo Management Innovation Advisory Committee announced management innovation measures at the government Seoul office in the afternoon. The innovation plan consists of three major areas: governance and management innovation, strengthening the supervisory system of the Geumgo, rationalizing the management structure of the Geumgo, and enhancing depositor protection, with 10 core tasks, 29 basic tasks, and 72 detailed tasks.

Saemaeul Geumgo has faced continuous financial incidents such as embezzlement, and in July, suspicions of insolvency in some Geumgos surfaced, leading to a bank run crisis. In response, the Management Innovation Advisory Committee was launched in August to initiate reforms.

Reducing the Chairman’s Power... Professional Management System

First, Saemaeul Geumgo plans to decentralize the authority concentrated in the chairman of the central association. The positions of executive director and supervisory director will be abolished and reorganized into a 'Managing CEO' who oversees overall operations, introducing a professional management system. The chairman will change from the current renewable term to a single 4-year term and will be limited to external activities and chairing the board of directors. Additionally, the number of directors who are chairpersons of Geumgos will be reduced, while professional directors will be expanded.

Furthermore, the chairman’s salary will be reduced by 23% to the level at the time of the 2018 transition to a non-full-time position, and full-time directors’ salaries will be adjusted downward by 28% to levels similar to other mutual finance sectors. Employees at the manager level and above will also be required to return this year’s wage increases.

Strengthening Soundness and Geumgo Supervision

Saemaeul Geumgo will also reorganize the Geumgo supervisory system. It plans to expand supervisory functions by strengthening links with the Financial Supervisory Service and enhance internal controls to eradicate financial accidents. Unlike other mutual finance sectors such as credit unions, agricultural cooperatives, and fisheries cooperatives, which are directly supervised by the Financial Supervisory Service, Saemaeul Geumgo has only been subject to joint audits with the Financial Supervisory Service upon request from the Ministry of the Interior and Safety, leading to criticisms of inadequate management and supervision.

During government joint audits, the role of the Financial Supervisory Service, which had been limited to some soundness inspections, will be significantly strengthened to guarantee practical inspection participation through a consultative body composed of the Ministry of the Interior and Safety, the Financial Supervisory Service, and the Korea Deposit Insurance Corporation. Participation and cooperation in all inspection tasks, including inspection planning and sanctions, will be ensured to greatly enhance the Geumgo inspection function.

Previously, the Ministry of the Interior and Safety and the central association led the inspection planning, but going forward, the consultative body will select Geumgos to be inspected and establish major inspection plans. Providing materials related to all inspection tasks will be mandatory, and the Financial Supervisory Service and the Korea Deposit Insurance Corporation will be able to request ad hoc inspections through the consultative body as needed.

Additionally, the continuous monitoring system will be advanced, and inspection capabilities will be focused on high-risk Geumgos such as those with high delinquency rates or large-scale Geumgos. Direct sanction authority over Geumgo employees by the Ministry of the Interior and Safety and the Saemaeul Geumgo Central Association has also been newly established. The central association will expand inspection personnel and operate roaming inspectors for ad hoc checks on vulnerable areas of Geumgos. These roaming inspectors will be hired in stages over three years, recruiting 60 professionals such as retired financial sector inspectors.

The soundness and risk management of Saemaeul Geumgo will also be strengthened. Provisions for bad debts will be increased, and liquidity ratios and loan-to-deposit ratios will be improved to align with other mutual finance sectors. Furthermore, the Mutual Finance Policy Council, previously chaired by a director-level official from the Financial Services Commission, has been elevated to be chaired by the vice chairman of the Financial Services Commission at the vice minister level.

In addition, to strengthen corporate credit management, which has been relatively lax compared to other mutual finance sectors, joint loans exceeding 20 billion KRW will require central association participation, and sectoral loan limits for real estate and construction industries will be strengthened to 30% each, with a combined limit of 50%. The mandatory deposit ratio of repayment reserves to the central association will be gradually improved from 50% to 100%, and the proportion of high-risk alternative investments such as overseas investments will be reduced, with quarterly business evaluations and strengthened management systems.

An early warning system to detect signs of insolvency early will be advanced, and Geumgos showing abnormalities will receive immediate on-site guidance and management. External audits, conducted every two years, will be strengthened to be annual for Geumgos with assets exceeding 300 billion KRW, and the installation of internal control teams within Geumgos will be expanded.

Expelling Insolvent Geumgos... Improving Depositor Protection System

Saemaeul Geumgo will also promptly promote rationalization of Geumgo management. Geumgos that have difficulty improving management due to high delinquency rates or small-scale Geumgos that have lost competitiveness will be designated as 'Geumgos at risk of insolvency' and included in structural improvement targets such as mergers. For Geumgos ordered to merge, on-site management guidance will commence. Rapid restructuring of Geumgos with severe insolvency, such as complete capital erosion, will be conducted to complete mergers by the first quarter of next year.

Regarding depositor protection, the contribution rate for the deposit insurance reserve fund will be gradually raised from the current 0.15% to 0.18?0.2%, and the existing payment cap will be gradually abolished to improve the reserve fund accumulation rate. Additionally, Saemaeul Geumgo plans to establish the 'Saemaeul Geumgo Integrated Financial Information Disclosure System' to enhance financial consumers’ access to financial information.

For mutual growth, new products such as the 'MG Hope Dream Loan,' a medium-interest credit loan for small business owners, and special guarantee products for low-credit borrowers will be launched.

Meanwhile, to implement these innovation plans, starting next year, the Ministry of the Interior and Safety and the Saemaeul Geumgo Central Association will establish the ‘Saemaeul Geumgo Management Innovation Implementation Promotion Team.’ The Financial Supervisory Service and the Korea Deposit Insurance Corporation will dispatch personnel permanently to the central association and share information with financial authorities on an ongoing basis. Implementation status will be reported to the Mutual Finance Policy Council, which has been elevated to the vice minister level, and the results will be disclosed to the public. Kim Seong-ryeol, chairman of the Management Innovation Advisory Committee, said, "I urge the Geumgos, the central association, and the Ministry of the Interior and Safety to faithfully implement the innovation plan and become a representative financial institution for ordinary citizens."

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