Section chief A at a local NongHyup branch in Iksan, North Jeolla, ran into financial trouble after a failed virtual asset investment in 2023. In July that year, A took out a 10 million won loan by stealing the identity of an elderly cooperative member. A judged it would be hard for the member to quickly notice the improper loan because of the member's age. A drew up a meticulous plan, including preemptively blocking the text message notifying the member that the loan was completed by changing the contact information in the system. In August that year, A also carried out 40 million won more than the additional loan amount previously requested by another member and transferred the difference to A's own account.
To evade tracking, A repeatedly siphoned off the illicitly obtained funds by first moving them into a corporate account under the office's name and then moving them back into A's own account. However, the office branch manager and managing director did not notice this process from 2023 through last year. Using this method, A obtained a total of 12 improper loans over two years and misappropriated 889 million won.
More local agricultural and livestock cooperatives have been disciplined by the National Agricultural Cooperative Federation for poor loan management. Local agricultural and livestock cooperatives currently are not directly supervised by the financial authorities and rely on internal audits. Critics say the closed operational structure has led to successive financial accidents and a deterioration in soundness.
According to data obtained by the office of Lim Mi-ae of the Democratic Party of Korea from the National Agricultural Cooperative Federation on the 28th, in-house audits found a total of 870 cases from January to September this year in which local agricultural and livestock cooperatives were cited for poor loan management (recommendation, business improvement, caution, warning, reprimand, delegated reprimand).
Among them, there were 23 cases that received the highest-level citations of "reprimand" or "delegated reprimand." A reprimand or delegated reprimand means ordering a swift response to serious financial accidents. At the same time, personnel sanctions such as suspension or dismissal of employees are imposed, and distribution subsidies to the legal entity are suspended. If distribution subsidies are cut off, transportation expense for agricultural products sold by members rises, leading to losses. It is effectively a disciplinary measure.
Last year alone, 44 cooperatives received reprimand or delegated reprimand measures for poor loan management, a 91.3% surge from the previous year. Most reprimand and delegated reprimand cases involved losses caused by employees' lax handling of loans. However, cases in which employees intentionally stole others' identities to execute loans or embezzled funds also continued to occur. From 2023 to September this year, there were 16 cases of employee identity theft loans and five cases of loan embezzlement at local agricultural and livestock cooperatives.
Some local agricultural and livestock cooperatives that recently suffered financial accidents saw their soundness worsen. A local livestock cooperative in Jeonju, North Jeolla, incurred a loss of 250 million won last year due to sloppy loan screening. The fallout continued, with a net loss of 270 million won in the first half of this year. Local agricultural and livestock cooperatives are smaller in scale than other financial firms, making them structurally vulnerable to direct hits to performance from a single loan accident.
Seo Ji-yong, a professor in the business administration department at Sangmyung University, said, "Financial accidents such as poor loan management are surging at local NongHyup cooperatives, raising serious concerns about soundness," and added, "Fundamental improvements are needed in the loan screening process at the National Agricultural Cooperative Federation level, and the financial authorities should directly step in to demand self-rescue measures from cooperatives where poor management accidents have occurred."
Lim Mi-ae said, "Mutual finance institutions are cooperative finance centered on members and should be used for purposes for members, such as mutual aid," and noted, "But poor internal controls are leading to a string of poor-quality and illegal loans." She added, "To restore the soundness of mutual finance at local NongHyup cooperatives, which is becoming increasingly serious, strong internal control measures must be established."