Starting with the National Agricultural Cooperative Federation, where regular inspections are underway, the financial authorities will review the actual status of business loan misuse across the entire financial sector. The authorities said they will take stern action if fraudulent loans are uncovered.
According to the financial authorities on the 25th, the Financial Supervisory Service began a regular inspection of the National Agricultural Cooperative Federation this week and is focusing on whether business loans were used through detours. The Financial Supervisory Service is checking whether sole proprietors borrowed under the pretext of working capital and then misused the funds for household needs, real estate investment, or other purposes, and whether there was document fabrication or lax screening in the process.
The Financial Supervisory Service is expected to finalize an on-site inspection plan for the entire financial sector as early as this week. The first targets are mutual finance institutions such as NongHyup and the Korean Federation of Community Credit Cooperatives (KFCC). Commercial banks have relatively strong internal controls, and savings banks were inspected in 2021. An official said, "As similar cases are being found even at commercial banks, we will inspect all sectors."
The financial authorities view the misuse of business loans as distorting the intent of productive finance, which is the direction of government policy. If funds that should be used for corporate growth flow into the real estate market, they could create an asset bubble, and during periods of rising interest rates, falling real estate collateral values could undermine the soundness of the financial system.
Despite the government's strong measures to curb household liabilities, lending by mutual finance institutions is on the rise. In the past month, household loans across the entire financial sector increased by 2.9 trillion won, with mortgage loans at commercial banks declining while household loans at secondary financial institutions grew by 3.3 trillion won. Of that, mutual finance institutions accounted for 3.1 trillion won.