Nationwide credit unions are struggling with management difficulties, with about one in five falling into capital impairment, but measures to resolve the problem are moving very slowly. Only one case has been confirmed this year in which a sound union with financial leeway acquired or merged with a troubled union.
According to the financial sector on the 1st, Changwon Credit Union and Changwon Mirae Credit Union in South Gyeongsang Province completed their merger on the 3rd of last month. Changwon Credit Union was in a state of capital impairment, with its net worth smaller than its capital, and Changwon Mirae Credit Union, which had much better operating conditions, absorbed it. Changwon Credit Union was established in 1982 and had operated for 45 years, but it is closing with this merger.
Such normalization steps are hardly being taken at other local unions. As of the first half of this year, 166 of the 862 local credit unions nationwide were in capital impairment, and the only one merged into a sound union was Changwon Credit Union.
An internal credit union official said, "Having another union absorb a troubled one can also hurt the acquiring union's operating condition. If it is in a major city such as the Seoul metropolitan area or a metropolitan city, mergers and acquisitions proceed relatively smoothly, but troubled unions in remote areas are, in reality, being shunned."
There are institutional limits to the role that the Credit Union Central Federation, the de facto control tower, can play. Among mutual finance institutions such as NongHyup, credit unions, and the Korean Federation of Community Credit Cooperatives (KFCC), credit unions are the only ones whose central federation lacks the authority to issue management improvement orders. The Credit Union Central Federation can only issue management improvement recommendations or demands, which are less binding.
The Financial Services Commission presented the creation of a management improvement order system for credit unions as a task to strengthen their soundness by the end of 2024. However, the related system has not yet been established. A credit union official said, "Specific criteria and the implementation timeline will be determined after review by the relevant agencies," and added, "We are supporting normalization by injecting management rationalization support funds into local unions that show potential for recovery."
The management rationalization support fund system was first introduced by credit unions among mutual finance institutions in 2018. After a memorandum of understanding (MOU) is signed between a union and the central federation, the MOU ends if the union achieves management performance targets such as the ratio of substandard-and-below loans and the arrears rate over about five years.
Over the past seven years, 12 of the 26 unions (46%) that received the support were deemed to have normalized operations and ended their MOUs. Of the remaining 14, three (Daejeon Daeheung, Ulsan Taehwa, and Seongam unions) were judged incapable of improvement despite receiving support, and the central federation recovered the support funds.
The number of local unions complaining of management difficulties is increasing every year. According to materials from lawmaker Heo Yeong of the Democratic Party of Korea, the number of credit unions that received financial condition improvement measures more than tripled from 39 in 2022 to 127 in 2025.