In the first half of this year, it was reported that 174 out of 1,265 nationwide Saemaul Credit Unions (13.8%) were in a state of capital impairment. Among them, it was found that 22 were in a state of complete capital impairment, meaning they could not repay debts even if they disposed of all their assets. This is attributed to the Saemaul Credit Unions, which were said to serve as a financial window for ordinary citizens, increasing corporate loans instead of household loans, including high-risk real estate project financing.
On the 4th, ChosunBiz compiled the regular disclosures from the nationwide 1,265 Saemaul Credit Unions for the first half of this year, revealing that there were 174 credit unions in a state of capital impairment. The region with the highest number of capital-impairment credit unions was Busan (25). Gyeonggi had 24, Daegu had 20, and Seoul recorded 18. Capital impairment means that losses have accumulated to the point where all the earnings that were previously accumulated have disappeared, along with the invested capital paid in by customers.
Among the 174 capital-impairment credit unions, 22 were found to be in a complete capital impairment state, having recorded negative total capital. Regionally, Daegu had the highest number at 8 (Bongsan, Daepyeong, Sincheon, Dasa, Bullobongmu, Geungogae, Daesin, Daeseong), while Busan had 5 (Busan Jeil, Busan Jurye, Baekyang, Ban-yeo 2 and 3-dong, Geoje 4-dong), and Seoul (Deungchon-dong, Oksoo) and Gyeonggi (Bukbucheon, Sehwa) and Jeonnam (Hampyeongcheonji, Naju Dongbu) had 2 each.
While not in capital impairment, 127 credit unions had retained earnings in a deficit (negative) state. This means that the revenue earned by these credit unions so far has completely disappeared. If this state of deficits continues, they will enter a state of capital impairment. Regionally, Seoul had the most with 29, followed by Busan (18) and Daegu (8).
In particular, it was reported that 438 credit unions had a non-performing loan ratio exceeding double digits, indicating an alarming situation. Notably, Bongsan Saemaul Credit Union in Daegu Jung-gu recorded a 65.5% ratio. This credit union fell into a state of capital impairment with a total capital of -55.9 billion won. Additionally, Daepyeong Saemaul Credit Union (62%) and Sincheon Saemaul Credit Union (41.6%) in Daegu are experiencing a significant increase in their non-performing loan ratios to unsustainable levels. A non-performing loan ratio exceeding 10% is considered a warning sign.
◇ Historic worst deficit due to real estate project financing failures
The capital depletion of several credit unions has been attributed to the unprecedented worst deficit recorded in the first half of this year. Nationwide, Saemaul Credit Unions reported a net loss of 1.3287 trillion won. This is the largest deficit in terms of half-year performance since their establishment in 1963. The scale of losses has increased by over 100 billion won compared to the previous largest deficit recorded in the first half of last year (-1.2019 trillion won).
Saemaul Credit Unions are facing a situation where losses have uncontrollably increased due to the impact of non-performing loans from real estate project financing. Real estate project financing is an investment method that borrows development funds based on sales revenues as collateral. The domestic real estate project financing market rapidly grew between 2020 and 2022 due to increased supply in the process of overcoming COVID-19. During that period, commercial banks refrained from handling real estate project financing loans due to high risk, leading to a surge in demand from savings banks and Saemaul Credit Unions in the mutual finance sector.
However, the real estate project financing market subsequently faced challenges such as rising interest rates, high inflation, high exchange rates, increasing unsold units, rising costs, and declining sales rates. As project companies began to struggle with timely repayments, the financial health of the institutions that provided the loans also began to shake significantly.
Savings banks have actively engaged in resolving non-performing loans in real estate project financing to recover financial health. As a result, they recorded a surplus in the range of 200 billion won in the first half of this year, and the arrears rate that soared to over 9% in the first quarter has decreased to 7%.
In contrast, Saemaul Credit Unions recorded an arrears rate of 8.37% in the first half of this year, rising 1.56 percentage points compared to the end of last year, indicating difficulties in managing soundness. Critics have raised concerns that Saemaul Credit Unions, contrary to their founding purpose of supporting household finance, focused more on corporate loans and failed to manage risks properly.
◇ If failures persist, customers will bear the burden
Under current law, if a credit union incurs losses, any unrecovered losses cannot be resolved through special reserve funds or voluntary reserve funds and are carried over to the next business year. If the scale of losses becomes too large, it may reduce the investment paid in by customers. Investments are not protected under deposit insurance. If a Saemaul Credit Union cannot recover losses using the investment, depositors may not receive deposits exceeding the protection limit of 100 million won.
Currently, Saemaul Credit Unions are managing insolvency by merging distressed credit unions with others. However, if neighboring credit unions are not large enough to absorb the losses, mergers may become difficult.
Saemaul Credit Unions are currently stating that they still have the capacity to bear the losses, so there have been no impacts on depositors. However, concerns have been raised that if this situation persists for an extended period and some credit unions face bankruptcy, depositor assets could also suffer losses.
President Lee Jae-myung has also instructed direct supervision and management of the Saemaul Credit Union insolvency situation. During a cabinet meeting on the 2nd at the Yongsan Presidential Office, he noted, 'It seems that Saemaul Credit Unions are truly in a blind spot for management and supervision,' and pointed out that, 'There are opinions that this oversight responsibility should be transferred to the Financial Services Commission, but as the Ministry of the Interior and Safety is managing it, isn't it being delegated to local governments?'
A Saemaul Credit Union representative said, 'It seems that the real estate market's conditions will lead to prolonged stagnation until improvements occur,' adding, 'We will work to overcome the crisis through efforts to reduce expenses, such as lowering deposit rates and internal efficiency improvements.'