South Korean regulator has reportedly asked major commercial banks to prepare USD 4bln financing for potential support to credit unions facing customer withdrawals, according to Reuters sources
- An official at the Financial Services Commission confirmed banks had been asked to prepare liquidity to aid MG Community Credit Cooperatives (MGCCC).
- Depositors were lining up last week to withdraw funds from an MGCCC branch after local media reported a rise in non-performing loans to real estate projects.
- Sharply rising rates and cooling property market have raised concerns about the potential impact on South Korea - Asia's fourth largest economy.
Analysis details (08:48)
[AI GENERATED]
- MGCCC, a non-bank financial intermediary in Korea, has a significant community presence since its inception in 1963, with assets twice as large as savings banks and over 1,300 branches.
- The PF insolvency issue highlighted MGCCC's vulnerability, and the risk of reemergence under tight credit conditions was previously flagged.
- Despite tighter mortgage measures between 2020-2022, MGCCC's looser lending standards made it a last resort for SMEs and self-employed individuals.
- MGCCC's governance by the Ministry of Interior and Safety led to less direct reporting to financial regulators, resulting in increased scrutiny amid rising delinquency rates.
- Poor risk management led to a surge in MGCCC's default rates from 1.9% at the end of 2021 to 6% by Q2 2023, prompting special inspections on 100 branches.
- Despite the rise in NPLs, it's expected that the issue will be managed and delinquency rates will decrease by year-end.
- The Korea Federation of Community Credit Cooperatives and KAMCO are purchasing bad loans from MGCCC, with financial authorities ready to support further restructuring if necessary.
10 Jul 2023 - 08:29- EquitiesImportant- Source: Newswires
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