The government and the financial authorities will conduct intensive checks on the soundness of individual Korean Federation of Community Credit Cooperatives (KFCC) in the first half of the year. If insolvency issues are found in a cooperative as a result of the inspection, restructuring such as mergers or closures will proceed.
According to the financial sector on the 6th, the Ministry of the Interior and Safety, the Financial Supervisory Service, and the Korean Federation of Community Credit Cooperatives (KFCC) have designated the first half as a period for intensive checks on KFCC and will begin soundness examinations of individual cooperatives. Earlier, the government decided that, in exchange for transferring supervisory authority over KFCC from the Ministry of the Interior and Safety to the financial authorities, the ministry, the Financial Supervisory Service (FSS), and the federation would establish a joint supervisory framework and conduct regular joint audits.
Through joint checks, they plan to identify insolvent cooperatives and, if necessary, take timely corrective actions to carry out restructuring such as mergers or closures. The government also said it would discuss additional measures to strengthen supervision of KFCC in the second half based on the results of this inspection.
As the soundness of KFCC has deteriorated due to bad loans in construction and real estate lending, including real estate project financing (PF) loans, the need to strengthen management and supervision has been consistently raised. According to an analysis by Korea Ratings, among 1,250 KFCC cooperatives nationwide, the number that received grades 4 to 5 in the management status evaluation rose from one at the end of 2022 to 159 (12.7%) at the end of June last year. In particular, the number of cooperatives that received a grade 4 roughly doubled from 81 at the end of 2024 to 157 at the end of last year.
KFCC management status evaluation grades are divided into five levels: grade 1 (excellent), grade 2 (good), grade 3 (average), grade 4 (vulnerable), and grade 5 (risky). Grades 4 to 5 are subject to management improvement requests under timely corrective action. Cooperatives that receive grades 4 to 5 in this inspection could become candidates for mergers or closures.
They were also reported to check whether the government's measures to strengthen KFCC soundness are working properly on the ground. Earlier, the related ministries held the Mutual Finance Institutions Policy Council and announced that they would gradually raise the capital adequacy ratio to boost the federation's risk management capacity.
The plan is to raise the management guidance ratio, currently around 5%, to 6% in 2026, 6.5% in 2027, and 7% in 2028, aligning it with the level of savings banks. The real estate-centered lending practice will also be improved. When calculating the net capital ratio, a 110% weighting will be applied to loans to real estate and construction, and the PF loan limit will be capped at 20% of total loans. A government official said, "In the first half, we will focus on checking the soundness of individual cooperatives and take appropriate measures."