Proposed amendment to Credit Unions Act enforcement decree open for public comment through July 15

The headquarters of the National Credit Union Federation of Korea in Daejeon. [National Credit Union Federation of Korea]
The headquarters of the National Credit Union Federation of Korea in Daejeon. [National Credit Union Federation of Korea]

Operational standards have been established for the National Credit Union Federation of Korea's planned nonperforming loan subsidiary, Credit Union Asset Management Co. The framework is expected to strengthen the federation's ability to resolve bad loans and manage financial soundness by building a comprehensive NPL management system comparable to those of other mutual finance institutions, such as the National Agricultural Cooperative Federation and the National Community Credit Cooperatives Federation.

The Financial Services Commission announced Friday that it would open a public comment period on a proposed amendment to the Credit Unions Act enforcement decree, accepting submissions through July 15. The amendment sets out detailed provisions governing the operation of Credit Union Asset Management Co. and specifies criteria for appointing standing auditors.

The amendment defines the scope of non-business assets the company may acquire: assets obtained by individual credit unions, the federation or federation-invested companies as a result of nonperforming loans; fixed assets that must be disposed of under management improvement or financial restructuring measures; and fixed assets that have become unused following mergers, business transfers or contract assignments.

The acquisition price for distressed assets must be based on objective valuations — such as appraisals by licensed appraisal firms — while also accounting for senior-ranking bonds, real rights and lease rights. When a price cannot be fixed in advance, the amendment allows for a post-settlement adjustment based on the difference between the acquisition price and the eventual disposal price.

The amendment also establishes a legal basis for the asset management company to process unique personal identifiers, including resident registration numbers, when unavoidable in the course of acquiring, selling or collecting on distressed assets.

The federation is working toward launching the asset management company in October. With the regulatory framework now in place through the decree amendment, preparations are expected to accelerate.

The amendment also clarifies criteria for appointing standing auditors at credit unions. Credit unions required to appoint a standing auditor are defined, in line with existing practice, as regional or group unions with total assets of 300 billion won (about $216 million) or more. Unions affiliated with religious organizations, incorporated associations or occupational groups that meet certain conditions may be exempt from the requirement.

Under the revised Credit Unions Act, unions eligible to appoint a standing auditor on a voluntary basis are defined as regional or group unions with total assets of 200 billion won or more but less than 300 billion won, or unions whose boards determine that appointing a standing auditor is necessary for financial soundness management, strengthening internal controls or preventing financial misconduct.

The changes are expected to ease the management burden on small and mid-sized credit unions while encouraging voluntary improvements to internal controls.

After the public comment period closes, the amendment will proceed through review by the Ministry of Government Legislation, followed by approval at the vice ministerial and Cabinet meetings, with the revision set to be completed in October and take effect Oct. 22, when the revised Credit Unions Act enters into force.


ehkim@heraldcorp.com