More than 80% of lending by the mutual credit arms of South Korea's agricultural and fisheries cooperatives, set up to support farming and fishing operations, has gone to property-backed loans, according to data released on the 6th. Loans under agriculture and fisheries policy programs accounted for less than 10%. More than 90% of delinquent loan balances also came from property-backed lending, raising concern that a downturn in the real estate market could erode the financial soundness of the cooperatives' credit operations.
Rep. Yoon Jun-byung of the Democratic Party of Korea, a member of the National Assembly's Agriculture, Food, Rural Affairs, Oceans and Fisheries Committee, analyzed data submitted by the National Agricultural Cooperative Federation and the National Federation of Fisheries Cooperatives. As of the end of August this year, property-backed loans totaled 363.2329 trillion won out of 434.1177 trillion won in total outstanding loans at the two groups' mutual credit operations, or 83.7%.
The concentration was especially pronounced at the agricultural cooperatives. Of 400.703 trillion won in total outstanding loans across 1,106 agricultural cooperative mutual credit units nationwide, 339.2139 trillion won, or 84.7%, was backed by property. At the fisheries cooperatives, 24.019 trillion won of 33.4147 trillion won in total outstanding loans, or 71.9%, was property-backed.
Lending to support farming and fishing, by contrast, was minimal. Agriculture and fisheries policy loans at the agricultural cooperatives stood at 15.997 trillion won, just 4.0% of the total, while loans to farmers and fishers came to 94.3239 trillion won, or 23.5%. At the fisheries cooperatives, policy loans totaled 3.1732 trillion won (9.5%) and loans to farmers and fishers 6.2281 trillion won (18.6%). Critics say the lending mix runs counter to the founding purpose of the mutual credit system, which was to support farmers and fishers.
The tilt toward property also showed up in delinquencies. Total delinquent loan balances at the agricultural cooperatives came to 21.0988 trillion won, for a delinquency rate of 5.3%. Of that, 20.2249 trillion won, or 95.7%, involved property-backed loans.
At the fisheries cooperatives, 2.1694 trillion won of 2.3724 trillion won in total delinquent loan balances, or 91.4%, came from property-backed lending. The overall delinquency rate was 7.1%, but the rate on property-backed loans reached 9.0%.
With property accounting for a large share of lending and delinquencies concentrated there as well, there is concern that a real estate downturn could weaken the soundness of the mutual credit operations. Critics say the loan structure should be overhauled around genuine funding needs of farming and fishing households and productive agricultural and fisheries operations, in line with the system's original role as a financial safety net for cooperative members.
"Farmers and fishers are pushed to the edge by the risk of rural communities disappearing, by climate disasters and by soaring farming and fishing costs, yet the mutual credit operations of the agricultural and fisheries cooperatives, which are supposed to support them, have become nothing more than property lending shops and have forgotten their duty," Yoon said. He added that the National Agricultural Cooperative Federation, the National Federation of Fisheries Cooperatives and financial regulators "must come up with soundness management measures to promptly clean up and recover non-performing property-backed loans," and stressed that "the loan portfolio must be completely overhauled around genuine funding needs of farming and fishing households and productive agricultural and fisheries operations."
