Audit: NongHyup sold vulnerable debtors' bonds at rock-bottom prices without informing them of debt relief options

The National Agricultural Cooperative Federation, known as NongHyup, sold distressed bonds at deeply discounted prices without properly informing vulnerable borrowers of their debt restructuring options — denying elderly and disabled debtors in rural areas the chance to restore their credit, a Board of Audit and Inspection probe has found.

The Board of Audit and Inspection released the findings Wednesday as part of a broader investigation into the management of major agricultural policy funds. The government supports NongHyup through the Agricultural Credit Guarantee Fund, but subrogation payments — cases where the fund steps in to cover defaulted loans — have risen steadily, from 4,309 cases worth 307.2 billion won (about $202 million) in 2020 to 6,468 cases worth 419.6 billion won in 2024, reflecting a deterioration in farmers' financial conditions.

Against that backdrop, the need for debt restructuring has grown more pressing. Yet the audit found that NongHyup did nothing beyond mailing written repayment demand notices after writing off special-category bonds, providing no telephone guidance or other outreach on restructuring options. When no restructuring applications followed, NongHyup cited the lack of response as grounds to sell the bonds to NongHyup Asset Management at steep discounts.

The audit board said the practice left vulnerable borrowers unable to resolve their financial uncertainty or rebuild their credit, while NongHyup forfeited additional recovery it could have achieved through restructuring. The average sale price of bonds sold between 2020 and 2024 amounted to just 1 percent of face value, whereas restructuring would have allowed NongHyup to recover roughly 10 percent.

Of the 12,995 special-category bonds NongHyup sold to NongHyup Asset Management during that period — with a combined sale value of 4.97 billion won — 3,126 cases worth 8.25 billion won were ultimately recovered through NongHyup Asset Management's own debt restructuring process.

Of those, 1,996 cases with a sale value of 580 million won involved debtors aged 60 or older, making them eligible for NongHyup's own social vulnerability debt restructuring program — yet NongHyup sold the bonds to its asset management arm anyway. NongHyup Asset Management, which informs vulnerable borrowers of classification criteria and available principal reduction rates, recovered 4.96 billion won from those 1,996 cases. It restructured 415 of them within 90 days of acquiring the bonds, recovering 1.03 billion won.

In response, the audit board directed the NongHyup chairman to provide detailed guidance on restructuring eligibility and available reduction rates to vulnerable borrowers who express interest, and to actively encourage them to apply. The board also notified NongHyup to develop measures strengthening debt restructuring support for vulnerable borrowers before any further bond sales, so that such cases are no longer transferred to NongHyup Asset Management.