Banks assemble funds to support embattled KFCC

Commercial and state-run banks have signed some 6 trillion won ($4.6 billion) worth of repurchase agreements with the troubled Korean Federation of Community Credit Cooperatives (KFCC) to provide liquidity amid concerns over a credit crunch.

A signboard of the MG Community Credit Cooperatives, also known as the Korean Federation of Community Credit Cooperatives [JOONGANG PHOTO]

Commercial and state-run banks have signed some 6 trillion won ($4.6 billion) worth of repurchase agreements with the troubled Korean Federation of Community Credit Cooperatives (KFCC) to provide liquidity amid concerns over a credit crunch.

Financial regulators requested the five state-run banks — KB Kookmin, Shinhan, Hana, Woori, NongHyup — to cooperate in providing liquidity to the KFCC through repurchase-agreement facilities, according to Reuters on Monday.

Repurchase facilities act as short-term loans.

Each bank signed between 500 billion won to 2 trillion won worth of the repurchase agreement, according to local media reports. Maturity for the repurchase facilities ranges between nine and 11 days.

The state-run Korea Development Bank and the Industrial Bank of Korea are also providing at least two trillion won of liquidity support to the credit union.

KFCC was hit by customer withdrawals after the media reported on a rise in non-performing loans related to real estate projects. Customers lined up to withdraw deposits at the Namyangju branch in Gyeonggi last week, which is due to close soon.

The government urged people to refrain from withdrawing their deposits and provided guarantees about the safety of their assets. Deposit withdrawals at the credit union have slowed and the amount of new deposits has increased since July 6, said the Financial Services Commission in a joint statement with the Ministry of the Interior and Safety on Sunday.

The KFCC said in a statement last week that its debt delinquency rate is manageable and that it would work on improving its financial soundness.

The delinquency rate at the KFCC jumped to 6.18 percent in June compared to 3.59 percent at the end of 2022. However, the government said the credit union has enough capital, with 77.3 trillion won in repayment reserves and 2.6 trillion won in deposit protection reserves.

The government said last week it will launch an inspection on 30 branches with delinquency rates exceeding 10 percent.

BY JIN MIN-JI [jin.minji@joongang.co.kr]