Financial Authorities to Develop Land Collateral Loan Regulations Triggered by LH... Mutual Finance Full Survey Announced (Comprehensive)

Government Declares Determination to Block Speculation, "All Alternatives Carefully Prepared"
Financial Supervisory Service Expected to Launch Full Investigation Soon... Mutual Finance Likely to Be Focus of Intensive Inspection

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 Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kwangho Lee] Financial authorities are preparing regulatory measures to prevent recurrence of land-backed loans in the wake of 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," adding, "Measures to prevent recurrence, including legal sanctions, will be prepared soon."

Financial Services Commission Chairman Eun Sung-soo hinted at the need to strengthen regulations on land-backed loans during a meeting with reporters the previous day. Chairman Eun said, "Regarding real estate loan regulations, attention was focused only on housing, with less interest in the secondary financial sector and 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 secured loans with a Debt Service Ratio (DSR) exceeding 100% amounted to about 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 and provide loans up to 80% in some areas, but loan screening is strict, including DSR checks. In particular, the LTV 70% regulation for mutual finance institutions is only an administrative guidance from financial authorities and lacks legal grounds for sanctions.

[Image source=Yonhap News]

LH Employee Speculation Allegations Spread to Financial Sector... Intensive Investigation of Mutual Finance Institutions Expected

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, also declared his determination to "fight real estate crimes" by conducting speculation investigations, establishing measures to eradicate speculation, and preparing recurrence prevention plans. On the same day, during the ‘Real Estate Inspection Ministerial Meeting,’ Hong emphasized, "The LH speculation case was possible because large-scale loans were concentrated collectively at specific branches of banks," adding, "We must check whether there were any illegal, improper, or negligent acts during the loan process, and identify any blind spots or areas for improvement." He also ordered, "Financial Supervisory Service and other supervisory agencies should thoroughly investigate the loan process."

Accordingly, the Financial Supervisory Service is expected to soon launch a large-scale investigation targeting financial companies. Especially since it has been identified that LH employees sought loans from regional agricultural cooperatives, which are mutual finance institutions, a focused full-scale investigation of mutual finance institutions is anticipated. Regional agricultural cooperatives are known to have higher interest rates than commercial banks but are considered to have relatively lower loan barriers.

Financial authorities also plan to actively cooperate regarding the currently revealed issues. Chairman Eun said, "We recognize the seriousness and gravity of the matter and will actively cooperate," adding, "We will send capable personnel to contribute to the joint investigation headquarters’ inquiry."

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