Over 1,200 Saemaul Geumgo cooperatives nationwide posted a deficit of nearly 1.7 trillion won last year. This marks the largest loss in the history of Saemaul Geumgo. The massive deficit resulted from defaults in real estate project financing (PF) due to the downturn in the regional real estate market, leading to increased provisions for bad debts. Some insolvent cooperatives are reportedly facing bankruptcy as mergers have been slow after being selected for mergers.
According to the financial sector on the 28th, 1,276 local cooperatives nationwide recorded a net loss of 1.7 trillion won last year. After incurring a loss of 1.2 trillion won in the first half of last year, an additional loss of about 500 billion won occurred in the second half. Last year's deficit is noted as the largest loss in the history of Saemaul Geumgo. In 2022, Saemaul Geumgo recorded a net profit of 1.5 trillion won, and in 2023, a net profit of 86 billion won. However, last year, the profitability of cooperatives nationwide rapidly deteriorated.
The reason behind the widespread deficits recorded by local cooperatives is derived from building up provisions for bad debts. Financial institutions set aside money in preparation for potential credit losses due to non-performing loans or other reasons. This money constitutes the provisions for bad debts, which are recognized as expenses on financial statements. As a financial institution's provisions for bad debts increase, the profit size decreases.
The increase in provisions for bad debts at cooperatives nationwide is linked to the defaults in real estate PF. Financial institutions must create provisions for bad debts equivalent to the size of the bonds or proceed with sales of business sites if they receive 'cautionary' (C) or 'doubt regarding performance' (D) ratings upon evaluating the business viability of real estate PF locations. As of the end of September last year, the exposure to C and D grades in mutual financial institutions, including Saemaul Geumgo, was 10.9 trillion won. This is about half the C and D grade exposure in the entire financial sector, which stands at 22.9 trillion won. Local cooperatives often lend money to small-scale business sites in non-metropolitan areas. As the regional real estate market declined last year, projects financed by these cooperatives were also hit.
Due to the massive deficit, some cooperatives are experiencing difficulties in merging. Some insolvent cooperatives that have been selected for mergers are set to merge with nearby cooperatives. For a merger to be finalized, consent from both the insolvent cooperative (the merging party) and the nearby viable cooperative (the merged party) is needed. Recently, as the number of insolvent cooperatives has increased and viable cooperatives are reluctant to excessively expand their asset base, mergers are not proceeding smoothly.
Cooperatives that ultimately fail to merge may face bankruptcy if losses deepen. This raises concerns within local cooperatives regarding the protection of customer deposits and investment. A local cooperative employee stated, "If a cooperative goes bankrupt, amounts exceeding 50 million won in customer deposits will be used for loss recovery," adding, "Investment characterized as contributions naturally will not be protected."
However, the Ministry of the Interior and Safety and financial authorities have stated that this deficit situation will not harm customer funds. An official from the Ministry said, "Neither the Ministry of the Interior and Safety nor the Saemaul Geumgo Federation consider regional cooperative bankruptcies," adding, "We'll merge the insolvent cooperatives to ensure the safety of customer deposits and investment."