The Ministry of the Interior and Safety and the financial authorities will begin renewed discussions on the oversight system for the Korean Federation of Community Credit Cooperatives (KFCC) starting at the end of this year. The Ministry of the Interior and Safety (MOIS) and the financial authorities have formed a special management task force (TF) for the KFCC and are conducting soundness management, and they are exchanging views on how to continue joint management on a standing basis. MOIS is also reportedly considering a plan to transfer part of its supervisory authority to the financial authorities.
According to the financial industry on the 3rd, MOIS plans to wrap up the KFCC special management TF tasks, which have been extended through the end of this year, and discuss this plan with the financial authorities. MOIS and the financial authorities are reportedly in mutual agreement that the current cooperative framework should continue. MOIS plans to discuss a wide range of alternatives, including transferring part of the supervisory authority over credit business to the financial authorities through revisions to relevant laws. Currently, supervisory authority over the KFCC rests with MOIS.
The TF was formed in Dec. last year to manage the KFCC's soundness, and its initial operating period was through the end of June this year. The Ministry of the Interior and Safety (MOIS), the Financial Services Commission, the Financial Supervisory Service, and the Korea Deposit Insurance Corporation (KDIC) are participating in the TF. In the first half of this year, they checked the soundness status of 35 KFCC branches nationwide.
Recently, the deterioration in the KFCC's soundness has continued, but key indicators are gradually improving. Last year, the KFCC posted a net loss of 1.2658 trillion won, with the loss narrowing by 476.5 billion won from a year earlier. As of the end of last year, the arrears rate was 5.08%, down 1.73 percentage points (P) from the end of the previous year. This year as well, the KFCC's deficit is reportedly improving. In response, MOIS and the Financial Services Commission (FSC) have extended the TF period and are continuing measures to improve soundness.
Previously, during the real estate boom from 2020 to 2022, the KFCC sharply increased corporate lending, centered on real estate project financing (PF). As the market slumped, related arrears began to rise and soundness deteriorated. The KFCC's arrears rate was around 2% through 2021, but it surged to 8.37% as of the first half of last year.
At the time, some noted that not being directly supervised by the financial authorities was a factor in the KFCC's deteriorating soundness. In response, MOIS in 2024 signed a memorandum of understanding with the Financial Services Commission (FSC) to strengthen cooperation on soundness, including inspections and information sharing related to the KFCC.