As deposit outflows continue amid a "money move," credit unions are running promotional events offering gift certificates, electronic devices and other prizes. The market views the measures as efforts to strengthen the soundness of the unions and defend deposits, but concerns are being raised over additional insolvency stemming from excessive competition.
Credit unions are currently running capital contribution events at the level of individual unions, according to financial industry sources Wednesday. Gwangmyeong Credit Union is holding a lottery event offering air fryers, circulators and kitchenware to customers who deposit 100,000 won in capital contributions.
Busan City Central Credit Union has launched a "Capital Contribution Plus Event" offering VIP access to union welfare facilities for customers who deposit 3 million won or more in capital contributions. Jeju Credit Union is also running a "Capital Contribution 1+1 Lottery Event" through the end of this month, offering one or two prize draw tickets for items such as an Apple Watch and E-Mart gift certificates to customers who deposit 500,000 won or 1 million won in capital contributions. Preferential deposit interest rates are also provided as a matter of course at most unions. A senior financial regulatory official expressed concern, saying, "We are keeping a close eye on indiscriminate capital contribution events," and, "This could lead to a vicious cycle in management."
The Korean Federation of Community Credit Cooperatives (MG) is holding a prize event for members to mark its 63rd anniversary. Eligible members are those who make additional capital contributions of 50,000 won or more, and those who newly sign up for deposit and savings products with 5 million won or more or monthly installments of 100,000 won or more. Prizes including one don (3.75 grams) of pure gold, an iPad and mobile gift certificates are offered through a drawing, with a total of 3,926 people receiving prizes.
Capital contributions are money paid to become a union member and carry the character of the union's paid-in capital. When a union turns a profit, members can receive dividends after the annual settlement, but whether dividends are paid and the dividend rate vary depending on the union's performance and general meeting resolutions. From the union's perspective, an increase in capital contributions has the effect of bolstering equity capital and offers the advantage of expanding transaction relationships with members into deposits and savings.
These moves are tied to efforts to enhance the soundness of the mutual finance sector and to deposit outflows. According to the Financial Supervisory Service (FSS), the total net loss of all credit unions reached 327.7 billion won last year. Although this was down from the previous year (-350.3 billion won), the loss remains substantial. As of the end of last year, the ratio of substandard-or-below loans also remained high at 5.78%.
Deposits are also falling. According to the Bank of Korea (BOK), 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 sees the reduction of tax benefits as also contributing to the decline in deposits. Starting this year, income requirements are being applied to tax benefits on deposits and capital contributions at mutual finance institutions such as credit unions and community credit cooperatives, meaning members earning more than 70 million won a year face higher tax rates than before.
