MG Community Credit Cooperatives’ rising loan defaults prompt financial oversight

An official from the MG Community Credit Cooperatives enters the union's Daegu branch for an inspection, Monday, regarding allegations that Yang Moon-seok, the Democratic Party of Korea candidate for the Ansan A-constitutency in Gyeonggi Province, received loans through expedient methods. Yonhap

An official from the MG Community Credit Cooperatives enters the union’s Daegu branch for an inspection, Monday, regarding allegations that Yang Moon-seok, the Democratic Party of Korea candidate for the Ansan A-constitutency in Gyeonggi Province, received loans through expedient methods. Yonhap

By Lee Yeon-woo

Financial authorities are set to initiate inspections of MG Community Credit Cooperatives amid an increasing risk of financial instability. This marks the first examination on MG conducted by financial regulatory authorities instead of the Ministry of the Interior and Safety, which normally supervises the credit union.

Starting on April 8, the Financial Supervisory Service (FSS), in collaboration with the Korea Deposit Insurance Corp. and the Korean Federation of Community Credit Cooperatives (KFCC), will embark on a roughly two-week-long field inspection of MG Community Credit Cooperatives. The inspection will focus on four cooperatives with significant asset sizes.

This marks the first instance of the FSS tightening its oversight of the credit union since the formation of a consultative group with the interior ministry last July, amid fears of a bank run at the credit union. This initiative addresses criticisms that the interior ministry’s supervision of the credit union’s financial stability has been inadequate, due largely to a lack of financial expertise.

The Financial Services Commission also intends to establish a specialized team dedicated to the credit union as part of an organizational restructuring scheduled for early April.

The FSS’ upcoming inspection will concentrate on MG Community Credit Cooperatives’ financial insolvency, particularly noting the concerning trend in its loan delinquency rate. From 1.93 percent in 2021, this rate went up to 3.59 percent in 2022 and increased sharply to 5.07 percent in 2023. Estimates suggest they could have reached 7 percent as of March.

This increase is largely attributed to non-performing loans, especially tied to real estate project financing.

The credit union has also faced criticism following allegations that Yang Moon-seok, the main opposition Democratic Party of Korea candidate for the Ansan A-constituency in Gyeonggi Province, received expedited loans from the union. He allegedly invested in real estate using a business loan obtained by his daughter in her 20s in 2021, subsequently earning significant returns.

However, as the KFCC has initiated an internal investigation, the FSS has clarified that its inspection will focus exclusively on assessing the credit union’s financial health.

“This approach will be extended to encompass the entire secondary financial sector,” an FSS official said.

Leave a Comment