As deposit outflows continue amid a "money move," credit unions are running promotional events offering gift certificates and electronic devices. The market views these as measures to improve the soundness of the cooperatives and defend deposits, but concerns are being raised about additional risks stemming from excessive competition.
According to financial industry sources on Monday, credit unions are currently running capital subscription events at the level of individual cooperatives. Gwangmyeong Credit Union is holding a lottery event offering air fryers, circulators, and kitchenware to customers who deposit 100,000 won in capital.
Busan City Central Credit Union has launched a "Capital Plus Event" that provides VIP access to the cooperative's welfare facilities to customers who deposit 3 million won or more in capital. Jeju Credit Union is also running a "Capital 1+1 Lottery Event" until the end of this month, offering one to two prize draw tickets for items such as Apple Watches and E-mart gift certificates to customers who deposit 500,000 won or 1 million won in capital. Preferential deposit rates are also provided as standard by most cooperatives. A senior official at the financial authorities said, "We are keeping a close eye on indiscriminate capital subscription events," expressing concern that "they could lead to a vicious cycle in management."
The Korean Federation of Community Credit Cooperatives is holding a prize event for members to mark its 63rd anniversary. Eligible participants include members who make additional capital contributions of 50,000 won or more and members who newly sign up for savings products of 5 million won or more or with monthly payments of 100,000 won or more. Through a drawing, prizes including a 3.75-gram gold bar, iPads, and mobile gift certificates will be provided, with a total of 3,926 people receiving prizes.
Capital contributions are money paid to become a cooperative member and have the character of the cooperative's equity capital. When a cooperative makes a profit, members can receive dividends after the annual settlement, but whether dividends are paid and the dividend rate depend on the cooperative's performance and a resolution of the general meeting. From the cooperative's perspective, an increase in capital contributions has the effect of expanding equity capital and offers the advantage of broadening transaction relationships with members through savings products.
Such moves are tied to efforts to improve the soundness of the mutual finance sector and to deposit outflows. According to the Financial Supervisory Service, the total net loss of all credit unions last year reached 327.7 billion won. Although this narrowed from the previous year (-350.3 billion won), the loss remains significant. As of the end of last year, the ratio of substandard or below loans also remained high at 5.78%.
Deposits are also declining. According to the Bank of Korea, the combined deposit balance of credit unions, mutual finance institutions, and community credit cooperatives fell by 15.2301 trillion won, from 930.8613 trillion won at the end of last year to 915.6312 trillion won at the end of April this year.
The mutual finance sector views the reduction in tax benefits as also contributing to the deposit decline. Starting this year, income requirements have been applied to the tax benefits on deposits and capital contributions at mutual finance institutions such as credit unions and community credit cooperatives, so members earning more than 70 million won a year are subject to a higher tax rate than before.
