After Saemaul Geumgo, Nonghyup Follows Suit: Mutual Finance Loans Face Shutdown

Household lending to non-members and associate members at local Nonghyup (agricultural cooperative) branches is effectively being shut down. Following Saemaul Geumgo (community credit unions), Nonghyup is now also narrowing its lending window, signaling that financial authorities' pressure to manage household debt is spreading across the entire financial sector. According to financial industry sources on Monday, the National Agricultural Cooperative Federation (NACF) recently sent an official notice to local Nonghyup branches ordering them to halt new household loans to non-members and associate members if their year-on-year household loan growth exceeds 1%. The measure takes effect from Thursday. At Nonghyup, full members are those engaged in agriculture and livestock farming. Residents living within a local branch's business district who contribute a certain amount of capital qualify as associate members. General customers outside the business district are classified as non-members. Local Nonghyup branches are allowed to extend loans to associate members and non-members for up to 30% of their portfolio each. With this measure blocking loans to these groups, household loan supply is expected to contract significantly. In practice, local Nonghyup branches had been actively offering mortgage loans last year, leveraging their relatively low interest rates. With the measure taking immediate effect, borrowers must effectively complete their loan applications by Wednesday. Local Nonghyup branches had already suspended household loan applications through loan brokers starting March 3, and have also decided to halt interim payment and relocation expense loans starting March 9. NACF's decision is interpreted as a preemptive move to block the demand that has shifted to the mutual finance sector following tighter lending regulations on banks. According to the Financial Supervisory Service (FSS), bank household loans decreased by 300 billion won in February this year, while mutual finance sector loans increased by 3.1 trillion won. Household loans at Nonghyup branches nationwide grew by 3.2 trillion won in just January and February of this year, approaching last year's full-year increase of 3.6 trillion won. Saemaul Geumgo also saw household loans rise by 1.8 trillion won in just two months this year, after growing by 5.3 trillion won for all of last year. Industry observers are watching the possibility that the loan contraction trend could spread across the entire mutual finance sector. The Financial Services Commission's (FSC) household loan growth target for this year, at 1.5%, is lower than last year's 1.7% and falls far short of the projected nominal growth rate of 4.9%. Concerns over a "lending cliff" are growing as lending tightens even in the mutual finance sector, which is primarily used by ordinary citizens. "Group loans increased due to seasonal factors such as moving demand at the start of the school term, and volume restrictions have now been layered on top," a financial industry official said. "There is a strong possibility that loan origination, centered on the mutual finance sector, will drop sharply for the time being." Another official said, "Financial regulations are now at the forefront in the effort to stabilize the real estate market." The official added, "There are limits to solving the fundamental problem through demand suppression alone."

After Saemaul Geumgo, Nonghyup Follows Suit: Mutual Finance Loans Face Shutdown

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