South Korea asks banks to prepare $4 bln to support credit union - sources

Shinhan Financial

10/07/2023 08:29

By Seunggyu Lim
       SEOUL, July 10 (Reuters) - South Korea's financial
services regulator has asked major commercial banks to prepare
around $4 billion in financing to support a credit cooperative
hit by customer withdrawals, two banking sources familiar with
the matter said on Monday.
    An official at the Financial Services Commission confirmed
that banks had been asked to prepare liquidity through
repurchase-agreement facilities to aid MG Community Credit
Cooperatives, but did not comment on the amount. The official
declined to be named due to the sensitivity of the matter and
the commission had no further comment.
    Depositors were lining up last week to withdraw funds from a
branch of MG Community Credit Cooperatives after local media
reported a rise in non-performing loans tied to real estate
projects. The branch, in the city of Namyangju east of Seoul, is
due to be closed soon.
    South Korea's top financial authorities pledged on Sunday to
ensure liquidity at the credit cooperative, which has nearly
1,300 branches, saying in a statement that MG Community's
capital ratio and liquidity far exceeded regulatory ratios and
it had sufficient cash-equivalent assets.
    Sharply rising interest rates and a cooling property market
have raised concerns about the potential impact on Asia's
fourth-largest economy.
    South Korea's five major commercial banks have signed or are
in the process of signing repurchase agreements with the credit
union, said the sources, who declined to be identified because
of the sensitivity of the issue. Repurchase facilities allow for
raising cash in exchange for collateral, such as bonds.
   Woori Bank, Hana Bank, Shinhan Bank, KB Kookmin Bank and
NongHyup Bank had been asked to make financing available to MG
Community Credit, although the actual amount extended to the
credit union would depend on deposit withdrawals, the sources
said.
    The sources added that each of the banks was asked to
prepare 1 trillion won of financing, or 5 trillion won in total
($3.84 billion), as potential support.
    MG Community and the five banks did not immediately respond
to requests for comment.
    MG Community said in a statement last week that its debt
delinquency rate was manageable and it would work with the
Interior Ministry to improve its financial soundness.
    Sunday's statement, from officials at the Bank of Korea and
the Ministry of Finance as well as the Financial Services
Commission, added that withdrawals at MG Community had slowed
and new deposits had been coming in since last Thursday.
    An investor note from Citi last week played down the risks
from the incident but warned of negative effects on economic
growth from the indebted real estate sector.
    "We don't see systematic risks from the event," said Kim
Jin-wook, an economist for Citi in Seoul, adding that any
negative effects would likely be far less than those of a missed
bond payment by a theme park developer late last year.  
    South Korean financial authorities coordinated with
financial groups to set up a liquidity programme last November
when a missed bond payment by theme park developer
Gangwon-Jungdo Development sparked worries about a credit
crunch. 
($1 = 1,302.7800 won)

 (Reporting by Seunggyu Lim; Additional Reporting by Jihoon Lee;
Editing by Ed Davies and Edmund Klamann)
 ((jihoon.lee@thomsonreuters.com;))