Credit unions

A credit union (신협) is a not-for-profit financial institution that promotes the collection and distribution of funds on the basis of a common bond held between individuals or groups willing to cooperate, including communities, workplaces and organizations.

Key words
credit unions, credit cooperatives, deposit, credit unions deposit protection fund

History
In 1960, employees of Maryknoll Hospital and Catholic Relief Services in Busan established the first credit union in Korea ― the Holy Family Credit Union. Thereafter the credit union movement was set into full-scale action, triggering a growing need to develop an institutional framework for adoption of such credit unions in the financial system.

The establishment of the Credit Unions Act of 1972 provided a sound legal basis for them, and marked a turning point in credit union development.

Business and Services
A credit union deals in the following services: receipt of deposits and installment deposits from members, extension of loans to members, domestic exchange services, execution of business on behalf of the government, public organizations, the National Credit Union Federation of Korea or financial institutions, separate safekeeping, and discounting of bills.

Regarding their operational restrictions, a union may borrow funds within the limits of an amount equivalent to five percent of its total assets or its total amount of equity capital, whichever is greater. As to its fund management, a union may extend loans to single borrowers within the limits of an amount equivalent to 20 percent of its equity capital or one percent of its total assets, whichever is greater. It must also maintain a minimum of 10 percent of its balance of deposits and installment deposits as repayment reserves, and deposit half of those reserves with the National Credit Union Federation of Korea.

Nationwide Organization
The National Credit Union Federation of Korea (신협중앙회) is a non-profit corporate body composed of credit unions, that operates the following services:
 * guidance on, surveys of and public relations for the businesses of unions;
 * provision of educational programs;
 * inspection and supervision of unions;
 * mutual aid services for members; and
 * the conduct of credit services and projects commissioned by the government or public organizations.

Credit services offered by the National Credit Union Federation include
 * the receipt and management of deposits, installment deposits and repayment reserves from unions;
 * the extension of loans to unions;
 * domestic and foreign exchange services; and
 * credit union deposit protection fund (신협예금자보호기금).

Statistics
There were 582 credit unions in operation nationwide at the end of 1971, the year prior to establishment of the Credit Unions Act, but their number had swollen to 1,666 by the end of 1997. The 1997-98 currency crisis caused a rapid expansion in non-performing bonds, however, leaving a great number of insolvent credit unions to be liquidated or merged out of existence.

The total number of credit unions stood at 960 at end-June 2011. As of end-June 2011, credit unions secured 84.3 percent of their total funds from deposits, including 71.6 percent from time deposits, and allocated them among loans (57.9 percent), cash and deposits (26.0 percent), and investments in securities (11.8 percent) and other debentures.