The fact that the Saemaul Geumgo inflated interest that it had not received last year as if it had received it was revealed in a joint audit by the Ministry of the Interior and Safety and the Financial Supervisory Service. Following the audit results, Saemaul Geumgo plans to disclose its financial statement for the first half of this year in September, removing the interest revenue in question. As the interest that had been recorded as revenue until the end of last year disappears all at once in the first half of this year, Saemaul Geumgo's profitability and soundness are expected to worsen further.
According to a report from ChosunBiz on the 20th, the Ministry of the Interior and Safety and the Financial Supervisory Service determined that recognizing uncollectible interest on debt restructuring bonds as revenue in the joint audit of Saemaul Geumgo, which commenced last November, is problematic, and they directed that the uncollectible interest should not be recognized.
Saemaul Geumgo has implemented a debt restructuring program targeting borrowers who are in arrears or at high risk of falling into arrears, allowing a deferment or reduction of principal and interest repayments for a certain period. Typically, debt restructuring is aimed at vulnerable borrowers who are unable to repay debts to the extent of rehabilitation or bankruptcy. However, due to large-scale defaults on real estate project financing loans, debt restructuring was also applied to corporate loans. They preemptively reduced and deferred interest to lower the delinquency rate even before executing collateralizations such as auctions and sales. This raises concerns that the actual level of insolvency at Saemaul Geumgo is more severe than what is reflected in the disclosed information.
In this process, Saemaul Geumgo arbitrarily assumed that it would receive the interest it had not received due to debt restructuring in the future, accounting it as current interest revenue (uncollectible interest). The nature of debt restructuring bonds itself implies they are uncollectible, making their recovery uncertain; nevertheless, Saemaul Geumgo treated them as if all were to be recovered in its accounting. The Ministry of the Interior and Safety and others noted that while it is not erroneous to recognize expected uncollectible interest as revenue, calculating uncollectible interest on debt restructuring bonds as revenue was problematic.
If interest on uncollectible debt restructuring bonds, like those at Saemaul Geumgo, is recognized in accounting, it leads to an improvement in profitability shown in the balance sheet and income statement by accounting for them as assets and revenue, respectively. Although actual interest has not been received and the likelihood of receiving it in the future is low, it is already presented as if it has been received in accounting.
Saemaul Geumgo claimed that this accounting practice was valid; however, it was reported that the Ministry of the Interior and Safety and the Financial Supervisory Service did not accept this argument. It is understood that the Ministry of the Interior and Safety and others have concluded that since all mutual finance sectors except for Saemaul Geumgo do not recognize uncollectible interest from debt restructuring, the same standards should apply to Saemaul Geumgo.
There are criticisms that the consumers are bearing the losses because Saemaul Geumgo inflated interest revenue. Consumers, unaware that the interest revenue was overestimated, cannot accurately assess Saemaul Geumgo's profitability and soundness even by looking at its disclosures. Without internal data from Saemaul Geumgo, one cannot determine exactly how much uncollectible interest there is, even after reviewing the regular disclosures.
Saemaul Geumgo decided to cancel all previously accounted uncollectible interest on debt restructuring bonds in its financial statement for the first half of this year. If the effects of uncollectible interest disappear all at once, the net income for the period, as well as retained earnings, will decrease. The bigger the amount of uncollectible interest recognized by the savings bank, the more severe the impact is expected to be. It is also possible that savings banks that have already exhausted their retained earnings may transition into a negative state and enter into a situation of capital impairment. Across the nation, 1,276 Saemaul Geumgos recorded a net loss of 1.7382 trillion won at the end of last year, the largest in their history.
The Saemaul Geumgo Central Council stated, "The recognition of uncollectible interest from last year was not to inflate or abuse interest revenue," and added, "The accounting for uncertain recoverables is determined based on past experience rates, according to the accounting standards from 2024." Regarding the point that last year's settlement was unreliably inflated, they stated, "Changes in accounting estimates are required to reflect the effects of changes in the current and subsequent periods," and noted, "There are no plans to revise the 2024 settlement disclosures."