Mutual finance groups are preparing to select their next leaders as they face a series of deteriorating asset quality indicators and controversy over internal controls. With bad real estate project financing (PF) loans and rising delinquency rates as shared challenges, the next chairman's crisis-management capability is emerging as a key variable that will shape the organisations' future direction.

The Saemaul Geumgo Federation will hold the election for its 20th chairman on Dec. 17 at the MG Talent Development Institute in Cheonan, South Chungcheong Province, the financial sector said on Tuesday. Incumbent chairman Kim In, Yoo Jae-chun, head of Seoul Livestock Saemaul Geumgo, and Jang Jae-gon, head of Jongno Plaza Saemaul Geumgo, have completed candidate registration, setting up a three-way race. Chairmen of 1,262 local credit cooperatives nationwide will vote to elect the top vote-getter.

This election will be the first official vote held under a direct election system. The chairman election, previously run through an indirect vote by delegates, was converted to a direct election system starting with a by-election in December 2023. Kim, who served as acting chairman after former chairman Park Cha-hoon was suspended over bribery allegations, won that by-election.

An amendment to the Saemaul Geumgo Act changed the chairman's term to a single four-year term, but Kim, as a by-election winner, would be the final chairman to serve consecutive terms if he wins this election.

Kim is evaluated as having managed Saemaul Geumgo's financial soundness in a stable way after it was sharply shaken by troubled real estate PF loans. As of the end of September, Saemaul Geumgo's average delinquency rate was 6.78 percent, down 1.59 percentage points from the previous quarter.

Another achievement cited is the establishment of MG Saemaul Geumgo Asset Management Company (MG AMCO), a dedicated subsidiary for non-performing loans, to overhaul the bad-loan management system. Kim has also pledged to create a management rationalisation fund of about 4 trillion won and laid out a plan to support credit cooperatives at risk of distress and promote voluntary mergers.

Three-way race highlights re-election controversy and reform pitches

A last-minute variable has also emerged. Kim has been reported to police on allegations that he made sexually harassing remarks to a Saemaul Geumgo employee.

According to the Yongsan Police Station in Seoul, employee A filed a complaint against Kim on Nov. 27 for alleged violation of the Act on Special Cases Concerning the Punishment of Sexual Crimes. A civic group, the Coalition for the Advancement of People's Finance, is holding a relay of one-person protests in front of the National Assembly, the Financial Supervisory Service and the Saemaul Geumgo Federation, calling for Kim's immediate resignation.

Another candidate, Yoo, is stressing reform at the federation. Since taking office as head of Seoul Livestock Saemaul Geumgo in 2007, he increased the credit cooperative's assets to 950.2 billion won at the end of last year from 18 billion won.

He has pledged to transfer the federation's authority to local credit cooperatives and reorganise it into a support organisation rather than a management and control body. Another key pledge is to establish a Central Federation Innovation Committee focused on separating inspection and sanctions functions and strengthening disclosure of decision-making processes and financial information.

The final candidate, Jang, joined in 1987 and has worked in the field for about 40 years. He points to aggressive corporate lending led by the federation and an expansion of PF as the causes of Saemaul Geumgo's crisis. He also stresses the need to restore its role in providing finance for ordinary people.

Jang has drawn attention by pledging to acquire Homeplus, which has entered court receivership. Some in the industry have also responded with doubts about whether it is feasible.

National Credit Union Federation also holds election in January, with losses and internal controls as tasks

The National Credit Union Federation of Korea is also preparing for a leadership change. Incumbent chairman Kim Yoon-sik's term ends in February next year. An additional term is not possible.

Park Jong-sik, head of Samik Credit Union, Yoon Eui-soo, former external cooperation director at the federation, and Yang Jun-mo, a director at the federation, are being mentioned as preliminary candidates. Candidate registration will take place on Dec. 23 to 24, and the next chairman will be elected on Jan. 7 next year through an election in which 860 credit union chairmen nationwide take part.

As of the end of the first half, credit unions' total assets rose to 156.8 trillion won, but they recorded a net loss of 333.3 billion won, extending losses. Asset quality is deteriorating, with the delinquency rate rising 2.33 percentage points from the end of last year to 8.36 percent.

The next chairman is expected to face a dual challenge throughout the term of improving asset quality and strengthening internal controls. With multiple financial incidents occurring over the past 5 years, overhauling the internal control system is also cited as an urgent task.

A mutual finance industry official said, "Both Saemaul Geumgo and credit unions are at a time when leadership is needed to go beyond a simple chairman change and lead the restoration of organisational trust and structural improvement," adding, "The choice of the next head will determine the direction of mutual finance for the next several years."