Is the Door Opening for Expanded Use of Statutory Reserves? Ruling Party’s Chae Hyunil Proposes Saemaeul Geumgo Act Amendment

Accumulated 2.7 Trillion Won in Statutory Reserves,
But Usable Only for Bad Debt Write-Offs and Dissolution
Leveling the Playing Field with Other Mutual Finance Institutions Like Nonghyup, Suhyup, and Credit Unions That Allow 'Loss Coverage'
Saemaeul Geumgo: "Expecting a Virtuous Cycle of Enhanced Long-Term Financial Soundness"

A bill has been proposed to expand the permissible uses of the statutory reserves of Saemaeul Geumgo, allowing them to be used not only for the write-off of bad debts and dissolution, but also for covering losses. Saemaeul Geumgo, which is currently unable to offer new loans, anticipates that expanding the use of these statutory reserves will provide a much-needed boost to its fund management.

According to the financial sector and the National Assembly on March 16, Hyunil Chae, Member of the Democratic Party of Korea, proposed an amendment to the Saemaeul Geumgo Act on March 13 to expand the scope of statutory reserve utilization to levels common among mutual financial institutions. Under current law, Saemaeul Geumgo is required to allocate at least 15% of its annual surplus to statutory reserves, but these reserves may not be used to cover losses.

Statutory Reserves Cannot Be Used to Cover Losses at Saemaeul Geumgo...Unlike Other Mutual Finance Institutions

Saemaeul Geumgo can currently use statutory reserves only for bad debts that are already unrecoverable due to the expiration of claims or debtor bankruptcy, and for branch dissolutions. This limitation has left the institution vulnerable to anticipated losses. Regulatory fairness has also been an ongoing issue, as competitors such as Nonghyup, Suhyup, and credit unions are allowed to use statutory reserves to cover losses.

In the case of Nonghyup and Suhyup, losses can be covered in the following order: undistributed carryover funds, discretionary reserves, statutory reserves, capital reserves, and rotating equity contributions (excluding Suhyup for the last item). Credit unions can inject funds to cover losses in the order of undistributed surplus, special reserves, discretionary reserves, and statutory reserves.

In contrast, Saemaeul Geumgo must first use special and discretionary reserves to cover losses, with any remaining deficit carried over as a loss to the next year. As a result, even if the institution generates a profit the following year, it must first pay off the remaining deficits, making it impossible to pay dividends to customers and causing rigidity in its financial structure.

Need Recognized During the 21st National Assembly, but Bill Lapsed with End of Term...Revived in the 22nd

Hyunil Chae, Member of the Democratic Party of Korea

The Ministry of the Interior and Safety also submitted a bill to the National Assembly in 2020 aimed at relaxing the restrictions on the use of statutory reserves at Saemaeul Geumgo. However, after four years, the bill was scrapped when the 21st National Assembly’s term ended.

The National Assembly’s Public Administration and Security Committee, which has jurisdiction over the matter, noted in a chief policy report at the time: "Given that statutory reserves are accumulated from a portion of surplus to offset losses arising from the credit union's business, it is reasonable to expand 'loss coverage' to include losses incurred during the usual operation of the credit union's surplus fund management and other business activities."

Regarding regulatory fairness, the report also stated, "Since similar mutual financial institutions such as Nonghyup, Suhyup, and credit unions are permitted by law to use statutory reserves to cover losses, there appears to be no particular problem with the proposed revision."

A representative from Assemblyman Chae’s office explained, "The Ministry of the Interior and Safety submitted the bill to the relevant committee during the previous National Assembly, and the committee completed its review, but the bill was ultimately abandoned. Determining that the revision and review were justified at the time, we have proposed it again in this National Assembly."

Saemaeul Geumgo Expects Virtuous Cycle of Expanded Customer Benefits and Enhanced Financial Soundness from Legal Revision

If the Saemaeul Geumgo Act is amended, it is expected to ease constraints on Saemaeul Geumgo’s financial operations. As of June 2025, Saemaeul Geumgo’s total reserves (statutory, special, and discretionary) amount to 6.7 trillion won, of which statutory reserves account for approximately 2.7 trillion won (40.3%), while net losses stand at 1.3287 trillion won.

Saemaeul Geumgo’s position is that, if it is allowed to use statutory reserves, it will be able to actively cover losses, eliminating carryover deficits and making it possible to pay dividends based on that year’s performance.

A Saemaeul Geumgo representative said, "We expect that this legal revision will enhance regulatory fairness with other mutual financial institutions and create a virtuous cycle of expanding customer benefits through dividends and strengthening the credit union’s long-term financial soundness."

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