A Korean Federation of Community Credit Cooperatives branch in Seoul, July 9. (Newsis)

The government on Thursday stepped in to soothe public anxiety over the Korean Federation of Community Credit Cooperatives (KFCC), as depositors' distrust toward the nation's primary mutual financial institution lingers over its high delinquency rates.

The joint briefing was organized by relevant agencies including the Ministry of the Interior and Safety, the Financial Services Commission and the KFCC.

"Customer assets, including savings deposits, are guaranteed to remain secure under all circumstances. We urge all citizens to use the KFCC with confidence," Interior and Safety Vice Minister Ko Ki-dong said.

In early July, the KFCC faced a substantial challenge when its delinquency rates surged, leading to a wave of deposit withdrawals estimated at approximately 17 trillion won ($12.8 billion). This raised concerns about the institution's financial stability.

As of June 29, the delinquency rate on loans issued by the KFCC had surged to 6.1 percent, a significant increase from the 3.59 percent reported at the end of the previous year.

Despite this recent challenge, the government highlighted that the KFCC had managed the situation and fully recovered from the episode of deposit withdrawals.

"It's evident that there has been a notable increase in deposits (in July), with balances steadily rising since July. The current situation is markedly different from when there was a significant withdrawal of 17 trillion won,” FSC official Shin Jin-chang stressed.

The government also introduced a separate earnings report for the KFCC's first half for the first time.

In the past, the FSS released earnings reports for mutual financial institutions as a whole on a biannual basis.

The KFCC's 1,293 branches saw their total assets reach 290.7 trillion won as of June, marking a substantial increase of 6.5 trillion won (2.3 percent) compared to the end of 2022.

Total deposits reached 259.4 trillion won, reflecting a growth of 8 trillion won (3.2 percent) from the previous year-end.

Total loans decreased to 196.5 trillion won, declining by 5.1 trillion won (2.5 percent) from the end of 2022. While corporate loans increased by 80 billion won, household loans declined by 5.9 trillion won.

During the first half, there was a loss in net profit of 123.6 billion won. However, the government anticipates that profitability will be restored by the end of the year, driven by reduced interest costs and strengthened management.

Despite the reassurance move, the government refrained from providing specific details in response to inquiries about KFCC branches with delinquency rates exceeding 10 percent and branches that might undergo mergers and acquisitions due to elevated delinquency rates on Thursday.

"During the first half of the year, two branches underwent merger and acquisition. We can only confirm that, out of the remaining 1,291 branches, more than 90 percent are in a sound financial position,” said Kim Gwang-hui, an official from the Interior Ministry, adding that at the moment he could not specify the branches with high delinquency rates.