LH-Originated Land Collateral Loan Regulation Measures to Be Introduced

Government Declares Determined Intent to Block Speculation, "All Alternatives Thoroughly Prepared"

On the 12th, members of Gukminui Sori held an unlimited debate (filibuster) criticizing land speculation by employees of Korea Land and Housing Corporation (LH) near Gyeongbokgung Station in Jongno-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kwangho Lee] Financial authorities are preparing regulatory measures to prevent recurrence of land-backed loans in response to the Korea Land and Housing Corporation (LH) scandal. This is interpreted as a strong determination to fundamentally block land speculation exploiting blind spots in the collateral loan system.

On the 12th, a senior government official said, "We are meticulously preparing all alternatives," and added, "Measures to prevent recurrence, including legal sanctions, will be prepared soon."

Financial Services Commission Chairman Eun Sung-soo met with reporters the previous day and indicated the need to strengthen regulations on land-backed loans, saying, "We consider this a serious situation." Chairman Eun stated, "Regarding real estate loan regulations, attention was focused only on housing, with less interest in secondary financial institutions and the land sector," and added, "In light of the LH scandal, there are calls for regulations related to land loans, so we will look into it."

In fact, as real estate loan regulations have tightened, loans secured by non-residential properties such as land have been on the rise. From September 2019 to July last year, new non-residential collateral loans with a Debt Service Ratio (DSR) exceeding 100% amounted to approximately 3.2 trillion won, accounting for 35.2% of all new loans. Given that most loans related to the recent land speculation allegations involving LH employees were made through local agricultural cooperatives, many attempting land-backed loans choose mutual finance institutions over banks, where loan screening is more stringent.

Commercial banks also apply a Loan-to-Value (LTV) ratio of 60% for individuals when executing loans, lending up to 80% in some areas, but loan screening is strict due to DSR considerations. In particular, the LTV 70% regulation for mutual finance institutions is only an administrative guidance from financial authorities and lacks legal grounds for sanctions.

On the same day, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki held a ‘Real Estate Inspection Ministerial Meeting’ and emphasized, "The LH speculation case was possible because large-scale loans were concentrated collectively at specific bank branches," and stressed, "We must inspect whether there were any illegal, unfair, or negligent acts during the loan process, as well as any blind spots or areas needing improvement." He also ordered, "Supervisory agencies such as the Financial Supervisory Service should thoroughly investigate the processes involved in the loan procedures."

This content was produced with the assistance of AI translation services.