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