A total of 37 credit unions across South Korea were placed under prompt corrective action through August this year because of deteriorating financial soundness.
The figure comes from data submitted by the Financial Supervisory Service to Rep. Min Byoung-dug of the Democratic Party of Korea, a member of the National Assembly's National Policy Committee, released on the 19th. It showed 37 credit unions were subject to prompt corrective action between January and August.
The annual tally rose from 13 in 2021 and 15 in 2022 to 39 in 2023, then jumped to 115 in 2024. Last year, 111 unions were classified as subject to the measures. This year's number is smaller than in the past two years, but it covers only the period through August and is not comparable with full-year figures. Financial soundness problems at credit unions are indeed continuing. As of the end of June, 166 of the country's 862 credit unions, or 19.3%, were in a state of capital impairment.
Prompt corrective action is a system designed to steer financially weak unions back to normal operations. Authority to impose measures on individual unions rests with the National Credit Union Federation of Korea. Depending on a union's financial condition, the federation issues recommendations or requirements to improve its financial position, or defers action. Depending on the level of the measure, management improvement steps may include raising capital, cutting costs, disposing of non-performing loans and restricting dividends.
Specifically, a union with a net capital ratio below 2% becomes subject to a recommendation to improve its financial position, while one that falls below -3% is subject to a requirement to do so. Ratings from management performance assessments are another criterion for determining whether measures are imposed. Action may be deferred, however, when financial indicators are clearly likely to improve within a short period through steps such as selling off non-performing loans.
An official in the financial industry said the situation reflects a period when interest rates rose sharply in a short time after the COVID-19 pandemic, along with shocks from the earlier downturn in the property and construction markets. "Market interest rates have kept rising this year, so managing delinquency rates at the unions is becoming increasingly important," the official said. "Troubled unions are currently being resolved by merging them with sound ones, which in effect dilutes the bad assets."