Incorporation procedures to follow amended Credit Union Act taking effect Oct. 22

Credit union federation targets late October to early November for launch

Purchase volume and criteria still undecided, to be finalized by year-end

[Korea Federation of Community Credit Cooperatives]
[Korea Federation of Community Credit Cooperatives]

The Korea Federation of Community Credit Cooperatives is moving to establish a dedicated asset management company for nonperforming loans as early as this month, with full-scale NPL purchases set to begin in November.

According to the Financial Services Commission, the Cabinet approved an amendment to the enforcement decree of the Credit Union Act on Tuesday. The revision spells out what assets the new credit union asset management company may acquire and how purchase prices are to be determined, ahead of the amended Credit Union Act — passed and promulgated last April — taking effect Oct. 22.

The asset management company will purchase nonperforming loans and related assets held by individual credit unions and the federation, then resolve them through sales and collections.

"We are currently making preparations to establish the asset management company," a federation official said. "Since the substantive incorporation procedures — including corporate registration — can only proceed after the law takes effect, we are in the preliminary preparation stage with a target of late October or early November." The FSC said it also expects NPL purchase operations to begin in November, following the federation's capital contribution and the FSC's own approval process for revisions to lending business supervisory regulations.

However, the specific volume and criteria for NPL purchases by the new company have yet to be determined. The federation must first gauge how much each individual credit union wants to sell, and because multiple channels exist for resolving distressed assets — including sales through existing NPL firms — it is difficult at this stage to specify how much will be handled through the new company.

"We need a demand survey as a basis, to understand how much in loan sales each credit union wants," the federation official said. Details are expected to be finalized around year-end after the company is established and stakeholder consultations are held.

Even after the new company launches, KCU NPL Daeboo — which has handled NPL resolution to date — will continue operating as a separate entity. "The new asset management company will be able to purchase assets more flexibly, so it is likely to place relatively greater emphasis on asset acquisition," the official said. "KCU NPL Daeboo is expected to focus more on recovering nonperforming loans it has already purchased."

Under the enforcement decree, the asset management company may purchase not only nonperforming loans but also real estate and other assets that credit unions have taken on as a result of those loans. Assets that must be disposed of during a management improvement process, as well as real estate no longer used for operations following a merger or business transfer, are also eligible for purchase.

Prices for distressed assets will be calculated based on objective valuations such as appraisals, with senior claims and lease rights also factored in. When an appropriate price cannot be determined from the outset, an initial price may be agreed upon for the transaction, with any difference settled after the actual disposal price is confirmed.

Financial authorities expect the move to give credit unions a comprehensive NPL management framework comparable to those of other mutual finance institutions such as the National Agricultural Cooperative Federation and the MG Community Credit Cooperatives, strengthening NPL resolution and financial soundness management across the sector.

Meanwhile, the decree amendment also eases the threshold requiring regional and group credit unions to appoint a standing auditor. The asset threshold triggering a mandatory standing auditor appointment rises from 200 billion won ($147 million) to 300 billion won. Unions with assets of 200 billion won or more that fall below the new mandatory threshold may still appoint a standing auditor if their board determines it is necessary for soundness management, internal controls or fraud prevention.


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won@heraldcorp.com