Non-farmers absorbed 89.4% of the 12.23 trillion won Korea's Nonghyup cooperatives added in loans

For every won of new credit that went to a full member in the first half, the cooperatives lent about 8.4 won to everyone else ^[18]. Associate members and non-members together hold 76.6% of the outstanding book ^[17]. On the stock of loans as well as the flow, these are local lenders that happen to carry a farm cooperative's charter. The rules treat the two groups differently. Associate members are not farmers but meet a cooperative's residency requirements, while non-members are mostly small and midsize companies and sole proprietors who bank there ^[6]. The cap Nonghyup has been pushing to ease limits non-member loans to 50% of total lending ^[10].

Non-members held 167.19 trillion won of the 399.97 trillion won book at the end of June ^[4][7]. Half the book is about 199.99 trillion won. If the cap were measured across all 1,112 cooperatives, that would leave roughly 32.8 trillion won of room ^[15]. The room shrinks slowly, because every loan to anyone lifts the ceiling by half its size. In the first half non-members added 6.57 trillion won while the ceiling rose by half of 12.23 trillion won, about 6.12 trillion won, so the gap narrowed by roughly 0.46 trillion won ^[16]. At that pace the combined book reaches 50% in about 72 half-years, or 36 years ^[16].

A system 36 years from its limit has little reason to push for a higher one. The report does not give cooperative-level shares of outstanding loans. It does name three cooperatives where almost all new lending went to non-members: 99.9% of the increase at Gimhae, 98.6% at North Busan and 94.6% at North Seoul ^[8]. We think the cap binds at books like these, and the push to ease it is about them. If the 50% test applies only to the combined book, or if those cooperatives' outstanding non-member shares sit well below half, that view is wrong and Nonghyup is pushing for headroom it would not need for a generation.

Regulators could ease the cap as Nonghyup asks. They could also rewrite the lending model, as the analysts and industry officials quoted in the report want ^[14]. Or they could leave the rule alone while growth keeps running through associate members. We'd expect the third in the near term, because it needs nobody to act. The case against that view is that the federation's membership figures went to a lawmaker, Rep. Kang Seung-kyu of the People Power Party ^[11], so the question has already reached the National Assembly.

Nonghyup wants the cap eased in a bid to boost earnings ^[10]. Its own institute's data is the weakest part of that case. The federation argues from need. "With the number of farmer members continuing to decline, demand from non-members such as corporate borrowers is on an upward trend," an official at the National Agricultural Cooperative Federation said. "To support the cooperative's commercial operations and its overall management, there is an unavoidable need for the financial business." ^[9] In April the Nonghyup Future Strategy Research Institute compared cooperatives with one another and found that higher non-member shares went with more bad-loan risk and lower profitability ^[12]. Location could explain part of that. Kim Jae-wook, an associate research fellow there, linked a 10-point higher non-member share to a substandard-and-below ratio 0.2 to 0.4 points higher and operating profit lower by roughly 190 million to 310 million won ^[13].