As the slump in the construction industry drags on, the asset quality of the Construction Mutual Aid Association is rapidly deteriorating. While the amount of money lent to members has decreased, the amount of money that is difficult to recover has nearly doubled, and the provision coverage ratio—which covers potential losses—has fallen to its lowest level in 10 years.
According to data on the financial soundness of the Construction Mutual Aid Association obtained on October 6 by Rep. Heo Young of the Democratic Party of Korea, a member of the National Assembly’s Land, Infrastructure, and Transport Committee, from the Ministry of Land, Infrastructure, and Transport, the association’s loans to members decreased by 15%, from 2.8301 trillion won in 2022 to 2.4084 trillion won as of the end of June this year. However, among these, the amount classified as “fixed” or below—indicating potential default risk—rose by 90%, from 138.1 billion won to 263.0 billion won.
Consequently, the proportion of assets rated “fixed” or below within the total loan portfolio rose from 4.88% in 2022 to 6.12% in 2023, 8.75% in 2024, and 10.19% in 2025, and further rose to 10.92% in June of this year. It has more than doubled in four years.
The trend is the same when looking at all assets subject to soundness classification. While assets subject to classification decreased from 3.1628 trillion won in 2022 to 2.9650 trillion won in June of this year, non-performing assets rose by 87.8%, from 421.3 billion won to 791.2 billion won. Although the loan loss reserve also increased from 322.5 billion won to 533.4 billion won, it failed to keep pace with the rate of increase in non-performing assets, causing the coverage ratio (reserve to non-performing assets) to drop from 76.6% to 67.4%. Compared to 81.4% in 2016 and 86.5% in 2017, this is the lowest level in the past decade.
Guarantee claims also rose significantly. When a construction company fails to fulfill a contract, triggering a guarantee claim, the association must first pay out the funds and later recover them from the contractor. The amount of guarantee claims soared from 136 billion won in 2021 to 520.5 billion won in 2023 and 969.9 billion won in 2024, and remained at 926.7 billion won in 2025. In the first half of this year alone, the figure reached 361.4 billion won. The amount actually paid by the associations on behalf of the contractors also rose from 84.4 billion won in 2021 to 250.4 billion won in 2025.
Not all of the money paid on behalf of members has been recovered. Over the past three years (2023–2025), the amount written off from the books through write-downs or the disposal of debt-for-equity shares totaled 345.2 billion won, but the amount actually recovered in cash amounted to only 151.1 billion won. The outstanding balance of debt-for-equity swap shares rose from 3 billion won last year to 10 billion won as of June of this year.
Representative Heo Young stated, stated, “What matters is not the association’s financial soundness indicators themselves, but the difficulties facing the construction industry behind those numbers,” adding, “As the deteriorating financial conditions of association members are leading to loan defaults and guarantee claims, the government and the association must detect warning signs on the ground early and take preemptive measures to prevent the problem from worsening.”
