Saemaeul Geumgo Initiates Merger Between Insolvent Unit Geumgos

Saemaeul Geumgo's 'Management Innovation Plan' Initiative
Number of Unit Geumgo Corporations Reduced from 1,293 to 1,288
Real Estate PF Loans Also Manageable
Strengthening Soundness through Employment Succession and Capital Expansion

Saemaeul Geumgo is confirmed to be proceeding with mergers among insolvent unit cooperatives. The plan is to complete the mergers by the end of March and strengthen soundness.

According to financial authorities and the mutual finance industry on the 8th, the Saemaeul Geumgo Central Association recently began mergers targeting insolvent unit cooperative corporations that have incurred deficits or financial accidents. As of this date, the number of unit cooperative corporations is 1,288, down by 5 from 1,293 in the same period last year.

This is part of the 'Saemaeul Geumgo Management Innovation' plan announced by the Saemaeul Geumgo Central Association in November last year. In the same year, Saemaeul Geumgo faced a bank run incident after it was revealed that corporate loans had increased and the delinquency rate had risen significantly.

The management innovation plan includes regulations limiting loan concentration in real estate and construction sectors and mandatory provisioning for unused credit limits. Along with this, as part of capital expansion, it was decided to proceed with mergers among insolvent cooperatives. The Saemaeul Geumgo Central Association plans to report the progress to financial authorities and the Ministry of the Interior and Safety by the end of January.

The merger of insolvent cooperatives is said to have been influenced by the increase in corporate loan delinquency rates and the recent deterioration of real estate-related loans. According to NICE Credit Rating, Saemaeul Geumgo's loans related to construction and real estate increased by 107.3%, from 27.2 trillion KRW at the end of 2019 to 56.4 trillion KRW at the end of January 2023. During the same period, loans for managed land trust project costs surged by 9,227.0%, from 169.4 billion KRW to 15.8 trillion KRW.

The delinquency rate for loans related to construction and real estate rose from 2.49% (end of 2019) to 9.23% (end of January 2023) and then to a provisional 12% (end of June 2023). The delinquency rate for managed land trust project cost loans also increased from 0.07% (end of 2021) to 0.71% (end of January 2023).

Kim Ye-il, senior researcher at NICE Credit Rating, stated, "Loans related to construction and real estate include simple collateral loans, so they cannot all be classified as real estate PF (bridge loans, main PF)," but added, "Considering overall market growth, it is expected that Saemaeul Geumgo's bridge loan volume is also significantly included."

However, most of the real estate PFs in which Saemaeul Geumgo participates are known to be senior tranches with a high likelihood of principal preservation. Additionally, under the financial authorities' PF lender consortium agreement, Saemaeul Geumgo signed a repurchase agreement (RP) purchase contract worth 6.2 trillion KRW with banks (KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NongHyup Bank, Korea Development Bank, Industrial Bank of Korea) to secure short-term liquidity.

A representative of the Saemaeul Geumgo Central Association said, "The merger of unit cooperatives is part of measures to strengthen competitiveness," and added, "Although concerns have been raised since the Taeyoung Construction workout, we have been managing PF risks through the cleanup of non-performing loans since last year."

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