Non-bank depositary institutions

Non-bank depository institutions (비은행 예금취급기관/非銀行預金取扱機關) generally engage in collecting deposits and offering loans, just as commercial banks do, but they are intended to serve limited purposes and fall under distinct regulations concerning their raising and management of funds. Precisely speaking, demand deposits make up almost none or only relatively small percentages of their fund-raising, and these institutions therefore maintain marginal credit-creation capacities and provide no or limited availability of payment and settlement with smaller business scopes than banks, and available products and services that are restricted in advance in line with the characteristics of the individual institution concerned.

Key words
non-bank depositary institutions, mutual savings bank, cooperatives, merchant bank

Types of Non-bank Banks
Non-bank depository institutions include mutual savings banks, credit cooperatives such as credit unions, community credit cooperatives and mutual banking institutions, the postal savings, and merchant banks.

The types of business entity vary: mutual savings banks and merchant banks are companies limited by shares, credit cooperatives are non-profit cooperatives, and the postal savings system comprises public financial institutions.

Mutual Savings Banks
Mutual savings banks are local financial institutions intended to serve the lower income brackets and small enterprises in given administrative areas through the provision of financial services. These institutions were established with enactment of the Mutual Savings and Finance Company Act, and faced a range of challenges including poor performance before eventually taking root as local financial institutions thanks to a series of government measures to foster them, for example, to enhance public confidence in them and to promote their business diversifications. As of end-June 2011 there were 105 of these institutions in operation, with total assets reaching approximately 86 trillion won.

Credit Cooperatives
Credit cooperatives include credit unions, community credit cooperatives, and mutual banking institutions ― among them including agricultural cooperatives, fisheries cooperatives, and forestry cooperatives. These financial institutions serve to support members’ mutual interests by providing them convenient access to savings and lending services.

Credit unions and mutual banking institutions are managed in accordance with the Credit Unions Act promulgated in August 1972, while community credit cooperatives are operated in line with the Community Credit Cooperative Act enacted in December 1982. As of end-June 2011, total assets held by the mutual banking institutions of agricultural, fisheries and forestry cooperatives stood at 223 trillion won, those held by community credit cooperatives at 91 trillion won, and those by credit unions at 51 trillion won.

Postal Savings
Postal savings are a form of public finance that utilizes the nationally dispersed postal service offices as a financial channel in order to offer savings opportunities in rural areas where private financial services are not yet fully available. This service has been delivered and operated pursuant to the Postal Savings and Insurance Act, and as of end-2010 the postal savings assets amounted to 49 trillion won.

Merchant Banks
Merchant banks engage in overall corporate finance, with the exception of payment and settlement, insurance and consumer credit. These financial institutions were introduced by the Merchant Banks Act of December 1975 and are designed to facilitate the raising of foreign capital.

In the wake of the 1997 Asian currency crisis, however, a string of non-performing merchant banks were merged and liquidated and the government suspended the granting of permits or approvals for new ones. The number of merchant banks has consequently been reduced, with only one specialized merchant bank now in operation, along with three banks and two securities companies currently providing merchant banking services as sideline businesses.

Their assets are valued at 1.4 trillion won, 13.2 trillion won and 6.2 trillion won, respectively. In the meantime, among non-bank depository institutions, mutual savings banks and credit cooperatives may be categorized as microfinance institutions specialized in raising capital in the form of savings deposits from lower income households or small enterprises in commerce and industry, based within given regions, and then offering loans to these target customers.

Microfinance
As a matter of fact, the postal savings system also serves a partial microfinance function for the populace by providing opportunities for small-scale household savings in rural and urban areas, but it does not fall within this category.

In order to provide more financial availability to the less privileged, the Microfinance Foundation (소액서민금융재단, 일명 미소금융재단) was established, modelling itself after Grameen Bank, with contributions of dormant deposits held with financial institutions under the Establishment, etc. of Microfinance Foundation Act (휴면예금관리재단의 설립 등에 관한 법률).