The Saemaul Geumgo in Seongnam is reeling from the insolvency of real estate project financing (PF). Many large geumgos with assets ranging from 700 billion to 1 trillion won are facing capital erosion and deficits in retained earnings, making it difficult to find other geumgos to merge with. The Saemaul Geumgo, which was once seen as a pillar of microfinance, has reduced household loans and focused on high-risk corporate loans, including real estate PF.
On the 3rd, ChosunBiz investigated the interim disclosures for the first half of the year from seven Saemaul Geumgos in Seongnam, finding that only the Seongnam Dongbu Saemaul Geumgo received a grade of 2 (good) in the management status assessment. The two geumgos that received a grade of 3 (normal), which are subject to management improvement recommendations, were Seongnam Jeil and Jungwon, while the four geumgos that need to merge if necessary received a grade of 4 (vulnerable): Nakwon, Seongnam Bukbu, Seongnam Sujeong, and Seongnam Jungbu.
Notably, the Seongnam Sujeong Saemaul Geumgo, with total assets of 1.5261 trillion won (7th nationwide), was in a deficit state regarding retained earnings. Retained earnings refer to the amount remaining after dividends and other distributions are made from the net income the geumgo earned. A negative retained earning indicates that accumulated losses have wiped out all previously accrued profits. If this situation continues and the capital exceeds total assets, capital erosion will begin.
The Seongnam Sujeong Saemaul Geumgo received a grade of 4 (vulnerable) in the management status assessment for the first half of the year and has become a geumgo that should push for a merger if necessary. The retained earnings for the first half of the year were -32.2 billion won, but other comprehensive income totaled 35.9 billion won, preventing it from entering into capital erosion. However, the investment contributed by members totaled 69.7 billion won, down 18.2% from the same period last year (85.3 billion won). Most importantly, the ratio of non-performing loans is nearing 31.44%. A non-performing loan ratio exceeding 10% is regarded as a danger signal.
The Nakwon and Seongnam Jungbu Saemaul Geumgos, ranking 15th and 16th in asset size nationwide, have fallen into a state of capital erosion and both received a grade of 4. The accumulated status of negative retained earnings signifies that the investments paid in by clients are being eroded in accounting terms. Particularly, the Nakwon Saemaul Geumgo had total assets of 1.5561 trillion won at the end of last year, making it the 6th largest, but its asset size dropped to 1.2689 trillion won in the first half of this year, falling to 15th place. The Seongnam Jungbu Saemaul Geumgo, which had ranked 3rd nationwide in net income in 2021, recorded a net loss of 23.8 billion won last year and 24 billion won in the first half of this year. Both geumgos have non-performing loan ratios exceeding 20%.
The reason why the large geumgos in Seongnam have fallen into a quagmire of insolvency is analyzed to be their focus on corporate loans over household loans. They increased high-risk real estate PF loans that were rejected by commercial banks due to their good profitability, and now they are unable to even manage the ensuing large-scale defaults.
The total household loan amount for the seven geumgos in Seongnam is 808.3 billion won, while the corporate loan amount reaches 4.4646 trillion won. In the first half of this year, the household loan amount for the Seongnam Jungbu Saemaul Geumgo, which is in a state of capital erosion, was 69.8 billion won, while the corporate loan amount reached 807 billion won. The Seongnam Sujeong Saemaul Geumgo, which is in a state of negative retained earnings, also had corporate loans (894.7 billion won) that were seven times greater than household loans (129.1 billion won).
The bigger issue is that among the seven geumgos in the Seongnam area, the insolvency of six geumgos is expanding, making it difficult to find another geumgo for merging. Moreover, Seongnam is an area where six large geumgos are clustered, ranking among the top 50 in asset size. Even if they attempt to merge with geumgos in adjacent living and economic zones, it is challenging to find a larger geumgo capable of absorbing the debt.
A representative from the Saemaul Geumgo Central Association noted, 'There are no geumgos wishing to merge within the same district, and in the case of agreements between the mayors of the respective regions, it is possible to recognize the business areas of geumgos with adjacent living and economic zones as their operational area.' He added, 'For large geumgos, the merging process may take slightly longer than for smaller ones, but it is not impossible.'