At mutual finance institutions' local cooperatives such as NongHyup, credit unions, and fisheries cooperatives, the share of loans to nonmembers has surpassed 40%. Supply to nonmembers, which expanded due to real estate project financing (PF)-related lending, does not appear to be shrinking. Critics say that, beyond the deterioration in soundness caused by bad loans, the original purpose of mutual finance institutions—channeling funds to local areas with a member-first focus—is being diluted.
According to the Financial Supervisory Service on the 29th, as of the first half of this year, loans to nonmembers handled by the fisheries cooperative, NongHyup, credit unions, and the forestry cooperative totaled 214.8579 trillion won, accounting for 40.4% of all loans issued. That was up 0.5 percentage points from the first half of last year. Over the past five years, loans to nonmembers at mutual finance institutions have steadily increased. As of the end of last year, the four institutions' loans to nonmembers stood at 208.5670 trillion won, up 48% from 2020. Their share of total loans also rose 5 percentage points over the same period, from 35.2% to 40.2%.
In particular, the rise in the share of nonmember loans at NongHyup and credit unions stood out. As of December last year, NongHyup's nonmember loan ratio reached 41.4%. That is higher than the ratios for members (24.6%) and associate members (33.9%). Associate members are those who do not engage in agriculture or fisheries but have an address within the business area. Compared with the end of 2020, NongHyup's nonmember loan ratio increased by 0.8 percentage points last year.
At credit unions, the nonmember loan ratio was 49.5% as of the end of last year. That is effectively on par with member loans (50.5%). Compared with the end of 2020 (26.2%), the ratio surged by 23.3 percentage points.
In contrast, as of the end of last year, the forestry cooperative (8.8%) and the fisheries cooperative (5.3%), whose nonmember loan ratios were in the single digits, were found to be steadily reducing those figures.
The industry sees the rise in nonmember loans at mutual finance institutions as tied to real estate PF. Real estate PF is an investment method in which development funds are borrowed using presale revenue as collateral. Korea's real estate PF market grew rapidly between 2020 and 2022 due to factors such as increased supply during the COVID-19 recovery, but project viability deteriorated from the second half of 2022. NongHyup and credit unions are said to have mainly handled bridge loans, the stage preceding real estate PF. Bridge loans offer high interest rates and strong profitability, but they also carry high risks of default.
Amid the expansion of real estate PF loans, the soundness of mutual finance institutions has worsened. According to the office of Chung Hee-yong of the People Power Party, the delinquency rate at local NongHyup, fisheries cooperatives, and the forestry cooperative reached 6.88% this year, more than five times higher than in 2021 (1.34%). The delinquency rate at credit unions was 8.36% this year, up 5.89 percentage points from 2022 (2.47%).
Financial authorities have also begun inspections of mutual finance institutions. In January, the authorities required mutual finance cooperatives to report to the Financial Supervisory Service (FSS) the aggregates of loans to the construction and real estate industries. The share of construction and real estate loans in total lending is also subject to reporting.
A mutual finance institutions industry official said, "We are aware of the criticism that the loan ratio for members has been declining recently," adding, "But as the financial environment changes, mutual finance cooperatives have no choice but to seek quality loans and increase nonmember lending."