Korea releases measures to quell Saemaul Geumgo concerns

A signboard of Saemaul Geumgo in Seoul [Photo by Yonhap]

The South Korean government is now contemplating strategies to incentivize customers to redeposit their funds within the same institution, in response to the growing concerns surrounding the stability of certain branches of Saemaul Geumgo and customers withdrawing their deposits.

Under this proposal, customers who choose to redeposit their prematurely withdrawn savings will be offered the same agreed interest rates and tax benefits as before. The primary objective is to restore confidence and prevent potential bank runs resulting from the insolvency issues within the real estate project financing (PF) sector involving the community bank. As part of its concerted efforts, the government has established a joint response team consisting of relevant agencies to address the crisis.

At a joint briefing held on Thursday, the Ministry of the Interior and Safety, the Ministry of Economy and Finance, the Financial Services Commission, the Financial Supervisory Service, and the Bank of Korea announced these measures from the government’s Seoul office.

The Ministry of the Interior and Safety cited previous instances in 2011 where Saemaul Geumgo customers who redeposited their withdrawn funds within two weeks were reinstated with the same interest rates and tax benefits as prior to their withdrawals. Drawing from these past cases, the government is currently in discussions with the relevant departments to implement similar measures.

Should these measures be implemented, customers opting to redeposit their funds would be eligible for higher contractual interest rates compared to the lower rates applied to premature withdrawals. Furthermore, they would enjoy the advantage of being subject to the rural special tax rate of 1.4 percent instead of the 15.4 percent income tax rate imposed on interest earnings, which is exclusive to credit cooperative members, for savings up to 30 million won ($23,000).

The opportunity to take advantage of these benefits is available to those who prematurely terminated their savings accounts and time deposits between July 1 and 6, with an application period extending until July 14.

While the liquidity crisis faced by Saemaul Geumgo in 2011 initially triggered temporary market volatility following remarks from financial authorities, swift resolution was achieved through the government’s announcement of countermeasures. However, experts contend that the recent Saemaul Geumgo incident has generated market distrust by concealing accurate statistical figures throughout the process, as concerns regarding the insolvency of real estate loans continue to intensify.