NongHyup Bank has confirmed that despite poor performance in the first half of this year, it has significantly increased the agricultural support project funds (land use fees) paid to the National Agricultural Cooperative Federation. The land use fees are resources for the promotion of agriculture and rural areas, and they represent the amount paid annually by NongHyup affiliates to the National Agricultural Cooperative Federation as a usage fee for their name (brand usage fee). The problem is that while the land use fees have increased every year, the details of their use are not disclosed, making it impossible to know if they are indeed being used for agricultural promotion.
According to the financial sector on the 18th, NongHyup Bank's net profit for the first half of this year (on a consolidated basis) was 1.1879 trillion won, a decline of 6.2% compared to the same period last year. During the same period, interest income fell by 6.6% to 3.6548 trillion won. While major commercial banks are celebrating strong performances, NongHyup Bank has seen its performance fall.
One of the reasons cited for the decline in NongHyup Bank's net profit is the increase in land use fees. According to Article 159 of the Agricultural Cooperatives Act, NongHyup affiliates are required to pay 2.5% of their annual sales (or operating revenue) as land use fees to the National Agricultural Cooperative Federation. In the first half of this year, NongHyup Bank paid 219.4 billion won in land use fees to the federation through NongHyup Financial Group, an increase of 18.5% (34.2 billion won) compared to the same period last year. While net profit has decreased, land use fees have in fact increased.
If the land use fees had not increased, the decline in NongHyup Bank's net profit for the first half of the year would have been cut in half. This year, NongHyup Bank plans to pay a record-high land use fee of 438.7 billion won. Of the total land use fees paid by NongHyup Financial Group in the first half of this year (325.1 billion won), about 67% was shouldered by NongHyup Bank.
A senior official at NongHyup said, "Since a lot of money is coming in from the booming banking sector, the federation is operating in a lax manner," and that "the federation can endure even with an oversized organization like it is now because of the land use fees contributed by financial affiliates."
The lack of transparent disclosure regarding the use of land use fees is also controversial. A source in the financial sector noted, "I understand that a significant portion of land use fees is being used for the federation's labor costs, special retirement benefits, and security, among other things," adding, "In fact, I believed that land use fees should be used for agricultural development, but are they being used in ways unrelated to their original purpose?"
NongHyup Bank is also increasing the dividends sent to the National Agricultural Cooperative Federation through NongHyup Financial Group. Last year, the dividends paid by NongHyup Bank to NongHyup Financial amounted to 890 billion won. Dividends have increased annually, from 740 billion won in 2021, 865 billion won in 2022, and 870 billion won in 2023. When combining the land use fees and dividends, NongHyup Bank is sending over 1.2 trillion won to the federation each year.
The Financial Supervisory Service has continuously pointed out that the large dividends and land use fees paid by NongHyup Financial Group and NongHyup Bank to their major shareholder, the National Agricultural Cooperative Federation, pose solvency issues. However, the federation counters by stating that its structure is different from that of NongHyup and other banks. Kang Ho-dong, chairman of the National Agricultural Cooperative Federation, said at a press conference in March, "The National Agricultural Cooperative Federation and the economic holding group perform various roles, so the overall situation is in the red. Therefore, the financial holding group must earn profits," and added, "While it currently pays 100% in dividends, if conditions allow in the future, it will strengthen educational support project funding to fulfill its role for agricultural workers in agriculture and rural areas."