The Financial Services Commission has announced a new regulation limiting real estate project financing (PF) loans from mutual financial institutions, including credit unions and agricultural cooperatives, to 20% of total loans. Additionally, the combined limit for loans to the real estate and construction sectors, along with PF loans, will be capped at 50% of total loans.
During a regular meeting on June 17, the Financial Services Commission approved a partial amendment to the 'Regulations on the Supervision of Mutual Finance.' This amendment is a follow-up to the 'Measures for Improving the Mutual Finance System' announced in December 2025 and will take effect on the date of the announcement. However, the PF loan limit regulation will be implemented starting April 1, 2027, to allow institutions time to prepare.
The criteria for estimating the expected recovery value of non-performing loans will also be strengthened. The scope of exceptions allowing the use of the final collateral appraisal value when estimating the expected recovery value for 'substandard loans' will be reduced. Non-performing real estate PF loans classified as substandard for an extended period will no longer be eligible to use the final collateral appraisal value for recovery estimates. This measure aims to prevent the overestimation of non-performing loan values and encourage appropriate provisions for potential losses.
The soundness standards for mutual financial institutions will also be raised. The ratio of net capital to total assets will be increased to at least 4%. The recommended financial improvement standard for credit unions will gradually rise to 4% by 2031, with a minimum requirement of 0%.
The management guidance ratio for the Mutual Finance Central Association will also be increased to 7%, aligning it with that of savings banks. The Financial Services Commission and the Financial Supervisory Service plan to continue enhancing the soundness and reliability of the mutual finance sector while also developing strategies to restore its identity as a regional and community financial institution.
* This article has been translated by AI.
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