Financial Authorities to Improve Practices on Farmland Collateral Loans and Employee Loans
[Asia Economy Reporter Song Seung-seop] Financial authorities are set to improve lending practices in the mutual finance sector. This move aims to strengthen internal controls over farmland mortgage loans and employee loans, issues that surfaced following the Korea Land and Housing Corporation (LH) scandal.
According to industry sources and related organizations on the 23rd, financial institutions will strictly enforce loan purposes and post-loan management during loan execution, and supervise to prevent borrowers from obtaining loans beyond limits through inflated appraisals.
The Special Financial Response Team for Real Estate Speculation plans to improve the system based on on-site inspections conducted by the Financial Supervisory Service (FSS). Earlier, the FSS inspection revealed cases where employees of local agricultural cooperatives took out loans under family members' names and then purchased land and commercial properties. Some employees were involved directly in their own credit reviews, but there was controversy due to unclear grounds for sanctions.
The response team is also considering measures such as reporting some agricultural corporations recently found to be involved in real estate speculation to investigative agencies for violations of the Capital Markets Act. Agricultural corporations receive tax benefits, but speculative activities beyond their original business scope are illegal.
Under current law, collective investment business requires approval from the Financial Services Commission and is subject to regulations on disposition and borrowing limits. Real estate speculation without notification may be considered unauthorized collective investment business.
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The Special Financial Response Team for Real Estate Speculation currently consists of the Financial Services Commission, the Financial Supervisory Service, the Korea Federation of Banks, and the Credit Information Service. It is responsible for investigating non-residential mortgage loan practices and coordinating with the government’s joint special investigation headquarters.
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