Korea's top financial regulator on Friday sought to reassure depositors in the Korean Federation of Community Credit Cooperatives, the nation's primary mutual financial institution, that the government would ensure the safety of their assets.
“I urge people to refrain from withdrawing their deposits from KFCC simply out of concerns, as it can lead to their financial losses,” Financial Services Commission Chairman Kim Joo-hyun said during a press conference held to commemorate his one-year anniversary in office on Friday.
His statement was made in response to increasing public concerns regarding KFCC’s soaring delinquency rate.
As of June 29, the delinquency rate on KFCC-issued loans stood at 6.1 percent, a significant increase from 3.59 percent at the end of last year.
Kim said that the government has this situation under control as it formed a team to tackle the issues which consists of relevant agencies, including the FSC, the Ministry of Public Administration and Security, the Ministry of Finance, the Financial Supervisory Service, and the Bank of Korea on Thursday.
“We will tackle this issue as one team. I want to emphasize once again that the government will use all available means to protect KFCC clients,” Kim said.
He further reassured KFCC’s clients by highlighting the deposit insurance coverage offered by the Korea Deposit Insurance Corporation.
This coverage guarantees the refund of deposits up to 50 million won per person at each financial institution in the event of bankruptcy or business suspension.
He said that approximately 94 percent of the deposits at the KFCC were below 50 million won, so there was no need for depositors to withdraw their funds.
“Some YouTubers have been spreading rumors that the KFCC is not subjected to this deposit insurance coverage, this is totally untrue,” Kim added.
He also advised people to trust the government rather than relying on information from unofficial sources like YouTube.
Kim added that even those who deposited more than 50 million won in KFCC did not have to worry.
He explained that historically, the KFCC has never failed to repay customer deposits, even during more challenging times such as the 1997 Asian financial crisis.
He said that rash withdrawals could lead to losses from forfeiting the initially agreed-upon interest payments, loss of tax benefits, and fees for early termination.
For instance, he explained that if a KFCC client has a time deposit with a maturity interest rate of 5 percent and chooses to withdraw the funds before the agreed-upon maturity date, the depositor would only receive an interest rate of 0.5 percent. Furthermore, they would not qualify for the tax benefit to avoid the 15.4 percent interest income tax.
During the press conference, Kim also talked about the bankruptcy of Silicon Valley Bank in the US and underscored the importance of being prepared for a bank run, the risk of which has increased due to the digitalization of banks.
Back in March, SVB investors and depositors withdrew a staggering $42 billion in a single day due to uncertainty surrounding the bank's financial situation. As a result, the bank collapsed the following day.
“To reduce these risks in the system, we will focus on creating quick emergency plans, implementing the account with stability with the Deposit Insurance Corporation, and discuss making changes to the lending system with the Bank of Korea,” Kim said.
