The financial authorities will tighten management of loan arrears rates in the mutual finance institutions through the end of the year and will also draw up measures to strengthen internal controls. Attention is on the move as the financial authorities tighten the reins on oversight at a time when the issue of unifying supervisory authority over mutual finance institutions has surfaced.
According to the financial sector on the 3rd, the Financial Supervisory Service has recently received and is reviewing target figures for this year's loan arrears rate management plans from mutual finance institutions. The Financial Supervisory Service plans to lower the average arrears rate of mutual finance institutions to the 4% range by the end of the year. As of the end of June, the loan arrears rate of mutual finance institutions (excluding Korean Federation of Community Credit Cooperatives (KFCC)) was 5.70%.
The financial authorities are said to have asked credit unions, which have the highest arrears rate, to bring the rate down to the 6% range by year-end. The arrears rate of credit unions was 8.35% as of the end of June. The financial authorities are also said to recommend cuts of 1 to 2 percentage points in arrears rates for the National Federation of Fisheries Cooperatives (7.82%), the National Forestry Cooperative Federation (7.45%), and NongHyup (4.70%).
The financial authorities plan to encourage active sales of nonperforming loans to lower the arrears rate of mutual finance institutions. In particular, for real estate project financing (PF), which accounts for a significant portion of nonperforming loans, they will set cleanup targets and periodically check implementation performance.
The financial authorities are also preparing measures to strengthen management of deficiencies in internal controls at mutual finance institutions. The financial authorities plan to establish guidelines under which only large cooperatives and credit unions will build internal control standards equivalent to those under the Act on Corporate Governance of Financial Companies. The threshold for large cooperatives and credit unions is expected to be 1 trillion won in assets.
The guidelines are expected to require large cooperatives and credit unions to establish internal control and risk management systems and to include measures under which executives, including the chair, are sanctioned when financial accidents occur. The financial authorities decided to finalize and implement the guidelines after collecting opinions from the industry.
As the financial authorities move to strengthen the management and supervision of mutual finance institutions, discussions on unifying supervisory authority are expected to reignite. Currently, supervisory authority over some mutual finance institutions, such as the Korean Federation of Community Credit Cooperatives (KFCC) and NongHyup, is dispersed. Supervision of the Korean Federation of Community Credit Cooperatives (KFCC) is conducted jointly through consultations between the Ministry of the Interior and Safety (MOIS) and the Financial Services Commission (FSC), and the economic business is handled by the MOIS. For NongHyup, the National Federation of Fisheries Cooperatives, and the National Forestry Cooperative Federation, supervision of credit business is handled by the FSC, while the economic business is handled by the Ministry of Agriculture, Food and Rural Affairs, the Ministry of Oceans and Fisheries, and the Korea Forest Service, respectively. The supervisory authority over the National Agricultural Cooperative Federation, at the top of NongHyup's governance, lies with the Ministry of Agriculture, Food and Rural Affairs. There have been persistent criticisms that the dispersion of supervisory authority has left some mutual finance institutions in a blind spot.
Lee Chan-jin, the Financial Supervisory Service (FSS) governor, also appeared at a National Assembly audit recently and said regarding the view that supervisory authority over mutual finance institutions such as the Korean Federation of Community Credit Cooperatives (KFCC) should be unified under the Financial Supervisory Service (FSS), "We are in active agreement." However, it is reported that the competent ministries, including the Ministry of the Interior and Safety (MOIS) and the Ministry of Agriculture, Food and Rural Affairs, have expressed negative views.
A financial industry official said, "I understand that the Ministry of the Interior and Safety (MOIS) has recently moved to first attempt internal reforms before handing over supervisory authority."