The Korean Federation of Community Credit Cooperatives, the nation's primary mutual financial institution, also known as Saemaul Geumgo, announced Friday it has set aside 1.4 trillion won ($1.05 billion) in reserve in the first half of 2024 to ensure the financial stability of the credit union.

The allowance for bad debts, also called a bad debt reserve, is a provision made in a company’s accounts in recognition of debts that cannot be collected. Allocating the reserve leads to a loss of profit for a lender.

In the first six months of this year, the credit union has set aside 1.4 trillion won for the cause, surpassing the 1.2 trillion won allocated in 2023. Of the 1.4 trillion won, 450 billion won was put aside in two months, following the government’s evaluation of the viability of finance loans for real estate development projects.

The accumulation results from the high-level management and supervision of its credit cooperatives, joined by the Ministry of Interior and Safety, the credit union explained. The Interior Ministry manages the KFCC.

With the additional accumulation, the KFCC’s allowance for bad debts stands at a total of 6.8 trillion won for the time being.

The credit union sold non-performing loans worth 2 trillion won in the first six months of this year to reduce the delinquency rate, which matches up to the last year’s sales amount of 2.4 trillion won.

It plans to load off additional loans worth 1.5 trillion won in the third quarter to ensure financial soundness, participating in auctions arranged by the financial authorities.

The credit union's retained earnings stand at 8.3 trillion won as of last year. Of the amount, 5.6 trillion won is set aside as a special reserve and voluntary reserve, a sufficient amount to respond to potential risks, the KFCC said.

"With the proactive allocation of the allowance for bad debts and the sales of non-performing loans, a loss of 1.2 trillion won has incurred. But considering the sufficiency of the reserve fund, the loss is at a controllable level," an official from the KFCC said.

"This year will be a time for (the KFCC) to make excruciating efforts to brush off potential weaknesses. We will put in all efforts for sound management.”