Korea Development Bank Applies 1% Loan Interest Rate to Employees... Needs Change but No Labor-Management Agreement Reached (Comprehensive)

Uncertainty Remains Over Compliance with the Revised Guidelines on Innovation in Public Institutions

[Asia Economy Reporter Park Sun-mi] KDB Industrial Bank is in the process of raising the interest rates on housing loans for employees to the level of commercial banks, but the implementation has been delayed due to a lack of agreement between labor and management. The bank has been criticized for providing preferential treatment by lending housing purchase funds to employees at interest rates lower than those of commercial banks, making revision urgent.

According to the financial industry on the 1st, KDB Industrial Bank's labor and management are currently discussing changes to the housing loan system for employees but have yet to reach a consensus.

Following the Ministry of Economy and Finance's announcement of the "Guidelines for Innovation in Public Institutions" revision on the 2nd of last month, starting from the 3rd of this month, when supporting housing funds (for purchase or lease) or living stabilization funds, the loan interest rate must use the "bank household loan rate" announced by the Bank of Korea as the minimum. Furthermore, housing purchase loans should only apply when a non-homeowner buys a house of 85㎡ or less. Additionally, the Financial Services Commission's "Loan-to-Value ratio (LTV)" must be applied for such loans.

However, the KDB Industrial Bank labor union opposes the change, viewing it as a regression in employee welfare. Since changes to the housing loan system for employees require labor-management agreement under the Labor Standards Act, the bank cannot enforce changes without the union's consent.

A KDB Industrial Bank official stated, "Although the Ministry of Economy and Finance announced the revised 'Guidelines for Innovation in Public Institutions,' it is a unilateral directive, so union members do not want the system changed." He added, "The biggest disagreement is over the loan interest rates, and the union has not yet formally responded to the bank's proposal."

1.68% Low-Interest Housing Loans... Lower than Didimdol Loan Rates

KDB Industrial Bank lends up to 50 million KRW from its own budget to non-homeowner employees for housing purchase funds under internal regulations such as the Household Stability Fund Lending Operation Guidelines and Welfare Regulations Enforcement Rules. The housing purchase funds must be repaid within 20 years, including a grace period of up to 5 years. The issue lies in the loan interest rate. According to the National Assembly Budget Office, as of the end of last year, KDB Industrial Bank's housing purchase loan interest rate was 1.68%, which is 1.11 percentage points lower than the general commercial bank household loan rate of 2.79%.

Between 2016 and 2019, the bank also lent housing purchase funds at interest rates 0.67 to 0.90 percentage points lower than commercial banks, but the gap has widened to 1.11 percentage points. It is even set lower than the Didimdol Loan interest rate of 2.05%, a policy mortgage for low-income households operated by the Korea Housing Finance Corporation. Due to the availability of low-interest loans, the outstanding balance of KDB Industrial Bank's housing purchase loans surged to 7.473 billion KRW at the end of 2020, more than five times the 1.428 billion KRW in 2016. The number of users also tripled to 181.

The National Assembly Budget Office judged that the rapid increase in employee housing loans at KDB Industrial Bank, combined with the significantly lower loan interest rates compared to commercial banks, is problematic. It pointed out that "KDB Industrial Bank needs to refrain from lending to employees at interest rates lower than commercial housing loan rates by revising internal regulations."

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