Among the top 50 Saemaul Geumgo, 11 (22%) have experienced capital erosion in the first half of this year. Capital erosion signifies that losses have accumulated to the point where all the revenue that the Geumgo had previously accumulated has disappeared, and even the investment that customers have deposited has been eroded. Even large Geumgo, with assets ranging from 700 billion to 1 trillion won, are faltering, turning Saemaul Geumgo into a potential trigger for financial instability.
On the 3rd, ChosunBiz compiled the semi-annual reports of the 50 largest Saemaul Geumgo, revealing that three Geumgo in the Daejeon area (Hanbat, Daejeon West, and Tandong) are in a state of capital erosion, the highest number. Seongnam (Nagwon and Seongnam Central) and Gwangmyeong (Gwangmyeong and Gwangmyeong East) each had two, while Uiwang (Uiwang), Seoul (Jongno Central), Paju (Paju Central), and Daegu (Hanadongsan) each had one.
The erosion of capital in many Geumgo is due to record losses. In the first half of this year, a total of 1,267 Saemaul Geumgo nationwide recorded a net loss of 1.3287 trillion won. This is the largest loss since its founding in 1963, based on semi-annual results. The loss amount has increased by more than 100 billion won compared to the previous record for the largest loss in the first half of last year (-1.2019 trillion won). This contrasts sharply with domestic savings banks, which faced difficulties due to non-performing real estate project financing (PF) loans, but recorded a turnaround with a net profit of 257 billion won in the first half of this year.
In particular, the Gwangmyeong Saemaul Geumgo in Gyeonggi Province has an asset size of 768.3 billion won, but its total capital is just 1 billion won in the first half of this year. If total capital reaches zero, the Geumgo's net worth will completely disappear, possibly entering a state of complete capital erosion.
The largest asset-sized Geumgo among those experiencing capital erosion is the Uiwang Saemaul Geumgo in Uiwang City, Gyeonggi Province, with assets of 1.3588 trillion won. This Geumgo had already entered a state of capital erosion by the end of 2022, when non-performing loans on real estate PF began to arise. At that time, the capital of the Geumgo was 109.3 billion won, but as of the first half of this year, it shrank to 70.3 billion won.
The Hanbat Saemaul Geumgo in Daejeon, with total assets of 1.2964 trillion won, received a rating of 4 in the semi-annual management evaluation and has become a Geumgo that should be merged if necessary. This Geumgo is under investigation for allegedly providing over 70 billion won in loans to a gang involved in charter fraud, and prosecutors have indicted the Geumgo's chairman and others on charges of breach of trust.
Among the top 50 Geumgo, four (Seoul Chuksan, e-Pureun, Dong Suwon, and Seongnam Sujeong) are not experiencing capital erosion but have negative retained earnings. Retained earnings refer to the accumulated amount remaining after dividends and other allocations from the net income generated by the Geumgo. Negative retained earnings indicate that all the revenue previously earned has disappeared. If this situation persists, it will lead to capital erosion.
In addition, 11 Geumgo received a rating of 4 (vulnerable) in the management evaluation, while 24 Geumgo, which are subject to management improvement recommendations, were rated 3 (normal). This means that seven out of ten large Geumgo are rated 3 or 4. Only five Geumgo received a rating of 1: Gunja, Cheongcheon, Seosuwon, Hyundai Motor, and HD Hyundai Heavy Industries.
According to the Saemaul Geumgo Act, when a Geumgo incurs a loss, it must compensate for the loss in the order of special reserve fund and voluntary reserve fund. Losses that cannot be resolved with these reserves can be carried over to the next business year, and if the loss amount grows, the investment paid by customers may be decreased. This means that losses would be covered by the investment. Investments are not covered by deposit protection. If the investment cannot cover the loss, deposits exceeding the deposit protection limit of 100 million won must be used.
However, Saemaul Geumgo officials state that because mergers of Geumgo will take place before deciding to reduce investments, neither investments nor harm to depositors will occur. They assert that they still have sufficient capacity to absorb the losses. The Saemaul Geumgo is managing losses by merging problematic Geumgo with sound ones.
A representative from the Saemaul Geumgo Central Association noted, "If the accumulation of losses becomes severe, mergers will be conducted before deciding to reduce the investment," and added, "In the case of a merger, all member deposits, regardless of the amount, are safely transferred to the merged Geumgo and guaranteed."