(Seoul = Yonhap News) Reporter Jihoon Han = In order to enter the local government safe deposit box market, Saemaul Geumgo is specifying a plan to improve the system, focusing on easing financial requirements and joint participation with banks.
It is attracting attention as a way to expand the deposit base amid the burden of bad debt and declining deposits, and once institutionalization is realized, competition with NH Nonghyup Bank, a strong player in the local safe deposit box market, is expected to intensify.
◇ Capital ratio 10 → 6% relaxation plan… Surplus requirements also increased from 3 to 2 years.
According to data submitted by the Ministry of Public Administration and Security by Rep. Song Ok-ju of the Democratic Party of Korea, a member of the National Assembly's Agriculture, Food, Rural Affairs, Oceans and Fisheries Committee on the 3rd, the Saemaul Geumgo Federation recently prepared a plan to improve the system, including easing capital ratio requirements and introducing a third safe, through a research service.
The key to this improvement plan is to ease the financial requirements that prevent mutual financial institutions from participating in the treasury.
Under the current law, the general accounting of local governments must be handled by banks. Mutual financial institutions such as Saemaul Geumgo can be designated as safes that handle special accounting and funds if they meet certain stability standards.
According to the Enforcement Decree, the requirements for participating in mutual financing are total assets of 250 billion won or more, total capital of 25 billion won or more, capital-to-assets ratio of 10% or more, and net profit before deducting corporate tax expenses for three consecutive years.
The improvement plan includes a plan to lower the double capital ratio standard to 6%.
The simple capital ratio of the banking sector was presented as less than 7%, raising the issue of fairness in the standards applied to mutual finance. Here, the capital ratio refers to the ratio of total capital to total assets.
A plan was also discussed to reduce the surplus requirement from three years to two years. The purpose is to expand participation opportunities even for new safes that have been established less than three years ago.
A plan was proposed to change not only the qualifications for participation in the safe but also the way local governments operate the safe.
Current law limits the number of safes designated by local governments to a maximum of two. The idea is to change this and consider introducing a third safe, which designates several financial institutions by accounting category.
It was also proposed to institutionalize a mechanism to encourage local governments to designate multiple safes.
Explaining that about 130 local governments operate single-level treasuries, he pointed out that opportunities to enter mutual finance, which can only handle special accounts and funds, are limited.
◇ Joining hands with banks to target the safe market... Aiming at Nonghyup-centered structure
The improvement plan also included a plan for the bank and Saemaeul Geumgo to form a consortium and enter the safe market together.
The bank takes charge of the first safe, and Saemaeul Geumgo takes charge of the second safe. It also included information that internet banks with relatively weak regional bases could be considered for collaboration.
A plan was also proposed to expand participation opportunities by performing some of the Geumgo's work on behalf of the Geumgo and to add up the number of branches of various Saemaeul Geumgo during evaluation.
As a problem with the current system, he cited 'monopoly' and mentioned NH Nonghyup Bank's market share as a representative example. This means that the participation of regional financial institutions should be expanded, taking into account contributions to the local community.
According to the vault status data from the end of last month, NH Nonghyup Bank is in charge of the vaults of 187 local governments, including 14 metropolitan governments and 173 cities, counties, and districts. It also manages 15 offices of education safes.
Saemaul Geumgo is in a situation where it needs to consolidate its reception base along with sorting out its insolvency.
According to the provisional results for the first half of the year announced by the Ministry of Public Administration and Security, Saemaul Geumgo posted a net loss of 676.8 billion won in the first half of this year. Although the amount of loss decreased compared to the same period last year, the deficit continued.
Total receipts at the end of June were 243.2 trillion won, down 12.1 trillion won from the end of last year. Entering local government treasuries can be an opportunity to attract public funds and expand the deposit base.
What will be key in the future will be how much the Ministry of Public Administration and Security, which is in charge of both Saemaul Geumgo supervision and the local government vault system, accepts the proposal. Another issue is how to harmonize the expansion of participation in mutual finance and the stability of public fund management.
In order to actually introduce the improvement plan proposed this time, follow-up procedures, such as revision of laws, must be completed.
Representative Song Ok-ju said, “There are constant calls to improve the system so that mutual finance with high local contribution can attract local safe deposit boxes dominated by commercial banks,” and added, “The competition to attract them may become more intense.”
