Interior ministry lets Korea's credit unions tap reserves to cover losses

The interior ministry said Tuesday that statutory reserves at South Korea's Saemaul Geumgo community credit unions can now be used to cover losses and that local branches may appoint an auditor who is not a member, under a revision to the Saemaul Geumgo Act published the same day.

The law took effect on publication and applies to auditors and chairmen elected from that point. The revision adds "full-time auditor" alongside the existing full-time director post, and widens the pool for local credit unions beyond their own membership.

Article 35 removes the separate write-off of bad debt and coverage of deficits, replacing both with the single concept of covering losses, and now allows statutory reserves to be counted among the funds available for that purpose, together with unappropriated surplus, special reserves and discretionary reserves.

As of the end of June, 1,239 credit unions held 273 trillion won ($205 billion) in assets, 243 trillion won ($182 billion) in deposits and 182 trillion won ($136 billion) in loans, according to government data.

The delinquency rate across the sector stood at 6.34 percent at the end of June, while the net capital ratio was 7.96 percent, above the 4 percent regulatory floor. First-half net losses narrowed to 677 billion won ($507 million) from 1.33 trillion won ($995 million) a year earlier.

The cooperatives have been merging weak branches since a wave of withdrawals. They absorbed 21 credit unions in the first half alone and plan to merge 30 more by the end of the year.