The financial authorities will establish a real estate project financing (PF) lending cap for mutual finance institutions as well. The cap will be set at the same level as for savings banks.
Risk management at mutual finance institutions will be strengthened across the board, including by making the method of calculating expected recoverable amounts for long-term arrears nonperforming loans more stringent.
The Financial Services Commission said on the 2nd that it will give prior notice of a partial amendment to the supervisory regulations on mutual finance institutions reflecting these measures.
Going forward, mutual finance institutions, including credit unions, NongHyup, fisheries cooperatives, and forestry cooperatives, will introduce a lending cap of "20% of total loans," the same as savings banks, to manage the risk of concentration in high-risk real estate PF lending.
In addition, the combined cap for real estate, construction, and real estate PF lending will be limited to 50% of total loans to prevent funds from being concentrated in specific industries.
Implementation is scheduled for Apr. 2027 to allow sufficient time to prepare for compliance.
The framework for calculating expected recoverable amounts will also be changed so that allowances for credit losses can be built in proportion to the risks associated with nonperforming loans such as real estate PF loans that have been in arrears for an extended period.
For substandard-or-below nonperforming real estate PF loans, the final collateral appraised value cannot be used when calculating the expected recoverable amount.
The scope of exceptions that allow the use of the final collateral appraised value when calculating the expected recoverable amount for substandard-or-below credit will also be reduced. If legal proceedings are scheduled to commence within three months, the final collateral appraised value may be applied as the expected recoverable amount only once.
If the collateral ratio is 150% or higher and it does not fall under other exception items, the expected recoverable amount will be calculated as a rule to prevent overstatement of expected recoverable amounts for nonperforming loans. For land, the officially assessed land price will be used as the basis.
The benchmark for the "net capital ratio to total assets," a management soundness indicator for mutual finance institution cooperatives, will be raised to at least 4% to bolster cooperatives' loss-absorbing capacity.
Accordingly, by 2030, the recommended standard for credit unions to improve financial conditions will be gradually raised to a minimum net capital ratio of 4%, and the requirement standard for improving financial conditions will be raised to 0%.
The management guidance ratio standard for the central unions of mutual finance institutions will also be raised to 7%, the level for savings banks, so that in a crisis the central unions can absorb the cooperatives' risks and provide a foundation to support them.
The notice of regulatory changes will run from the 3rd to the 16th, after which the Financial Services Commission (FSC) plans to complete the amendment within the year following a resolution by the commission.