Financial soundness of local agricultural and livestock cooperatives ‘shaken’

Buildings in downtown Seoul are seen faintly due to thick fog from the N Tower in Yongsan, Seoul on July 7. Reporter Chung Hyo-jin

The delinquency rate of joint loans issued by local agricultural cooperatives and livestock cooperatives, which are funded by their members, surged six-fold in a year and a half to reach the 11 percent range.

This is due to the fact that a large amount of money lent to purchase land was not recovered due to the real estate downturn.

It has been pointed out that the government and the National Agricultural Cooperative Federation (NACF) should actively prepare measures to restore the soundness of local financial institutions to prevent them from becoming unhealthy and damaging farmers.

According to the data submitted by lawmaker Lim Mi-ae of the main opposition Democratic Party of Korea (DPK) on July 7, the average delinquency rate of local agricultural cooperatives and livestock cooperatives (1,111) dealing with the loan business was 3.86 percent as of the end of May this year.

It is also a problem that the NACF’s target of managing the delinquency rate of loans for agricultural and livestock cooperatives (2.90 percent in 2024), but what is more serious is the steep growth rate. While the amount of loans increased by 0.86 percent to 348 trillion won at the end of May from 345 trillion won at the end of last year, the amount of delinquent loans increased by 41.0 percent in five months, from 9.5 trillion won to 13.4 trillion won.

In particular, delinquency of joint loans surged among them. Joint loans are handled by agricultural and livestock associations that have entered large-scale real estate development projects together, and most of them are used to purchase land.

The delinquency rate of joint loans did not exceed 2 percent until the end of 2022, but after rising to 7.41 percent at the end of last year, it reached 11.33 percent at the end of May this year, an increase of about 53 percent in five months. The amount of delinquent loans soared from 383.6 billion won at the end of 2022 to 1.670 trillion won at the end of last year and 2.634 trillion won at the end of May this year. The amount of delinquent loans increased by 58.3 percent in the five months since the end of last year and by a whopping 590 percent from the end of 2022.

The delinquency rate of joint loans soared as the real estate market cooled, the NACF explained. "As the funds used for various development projects have not been converted to main PF at the bridge stage, the local agricultural and livestock cooperatives have not been able to recover them," said an official from the NACF.

According to the “Best Practices for Risk Management of Joint Loans of Mutual Financial Cooperatives” set by the NACF, local agricultural cooperatives cannot treat loans related to real estate development as joint loans, but can only do so if the purchase of the project site is more than 90 percent complete. PF loans for real estate development are not allowed, but bridge loans, which are used to purchase land prior to PF, are allowed.

Farmers may be directly or indirectly affected by the deterioration of the financial health of local agricultural and livestock cooperatives, which are local and community financial institutions and are funded by member contributions. There are concerns about poor protection of members' deposits and installment savings and investment, increased interest burden, reduced access to loans, and reduced dividends.

※This article has undergone review by a professional translator after being translated by an AI translation tool.