The chief of the financial regulator urged mutual savings banks Monday to recommit themselves to their basic duty of serving their communities, also calling on them to quickly address risks on loans extended to real estate projects.

Kim Byoung-hwan, chair of the Financial Services Commission, made the call in a meeting with top officials from five major mutual savings banks and credit cooperatives, including Nonghyup.

"The mutual banking sector has long contributed to the balanced development of local communities, and their economic growth as financial institutions for communities and local residents," Kim told the meeting.

"However, there is now growing criticism that mutual banks are neglecting their natural duties while focusing on their own external growth," he added.

The financial regulator earlier said mutual funds and savings banks together held some 15 trillion won ($11.2 billion) in short-term real estate project financing (PF) loans that may soon cause problems. The amount accounts for nearly 72 percent of the total 21 trillion won deemed risky out of the total 216.5 trillion won extended in PF loans or loan guarantees.

Kim argued resolving the PF problem is the most urgent issue for mutual banks, insisting that "reckless investment and herding toward a particular area have led to a market distortion while placing mutual banks before repeated crises."

He called on the mutual banks to "quickly complete the liquidation of PF loans extended to failing projects" or at least within six months under the government-led restructuring plan.

The FSC chief also stressed the need for the banks to go "back to basics."

"The solution to the crisis facing mutual banks may be found in going "back to basics," he said.

"I believe they need to return to being the entities that provide financial products and services tailored to the needs of their local communities, using their "deep data," accumulated through years of close relationships with local communities and their people," said Kim. (Yonhap)