The Financial Services Commission (FSC) of South Korea has announced a revision to the Mutual Finance Business Supervision Regulation, following the December 2025 Mutual Finance Policy Council’s institutional improvement plan. The move aims to address risk management issues in mutual finance cooperatives, including credit unions, agricultural cooperatives, fisheries cooperatives, and forestry cooperatives. The revision focuses on enhancing the calculation standards for expected recovery amounts from long-term unresolved PF loans and bad debts, as well as introducing new lending limits and capital ratio requirements. These changes are intended to prevent excessive risk concentration and improve the soundness of the mutual finance sector.
The revised regulations will impact mutual finance cooperatives such as credit unions, agricultural, fisheries, and forestry cooperatives, as well as their central associations. Key details include restricting the use of final collateral appraisal values for calculating expected recovery amounts from long-term delinquent PF loans, except in limited legal circumstances. PF loan limits will be set at 20% of total loans, and combined real estate and construction loan limits at 50%, with exceptions for workplace and group cooperatives serving real estate and construction professionals. Minimum net capital ratio requirements will be raised to 4% for cooperatives, with phased increases for central associations up to 7% by 2034.
The regulation change is open for public comment from March 3 to March 16, 2026. After review by the Regulatory Reform Committee and FSC approval, the revision is expected to be finalized within 2026. PF loan limits will be enforced from April 1, 2027, while capital ratio requirements will be gradually increased through 2034, allowing institutions time to adjust. The schedule for central association capital ratio increases varies by institution, with credit unions reaching 7% by 2028 and agricultural, fisheries, and forestry central associations by 2034. Stakeholders can submit opinions via mail, email, or fax to the FSC Mutual Finance Team.
Frequently asked questions include: What is the main purpose of the regulation revision? The revision aims to improve risk management and financial stability in mutual finance cooperatives. Who will be affected by the new PF loan limits and capital ratio requirements? All mutual finance cooperatives and their central associations must comply, with some exceptions for workplace and group cooperatives. How can stakeholders provide feedback? Opinions can be submitted during the public notice period via mail, email, or fax to the FSC Mutual Finance Team.
The FSC’s regulatory revision is a targeted response to risk concentration and capital adequacy concerns in South Korea’s mutual finance sector. By introducing stricter PF loan limits and raising capital ratio requirements, the policy addresses vulnerabilities exposed by long-term unresolved loans and bad debts. The gradual implementation timeline demonstrates sensitivity to institutional capacity, while the public comment process encourages stakeholder engagement. Overall, these measures are likely to enhance the sector’s stability and resilience.