[2021 National Audit] Go Seung-beom, Who Announced Strengthened Loan Regulations, "Even Actual Borrowers Should Borrow Within Their Repayment Capacity" (Comprehensive)

Indication of 'Additional Measures' for Real Demand Loans Including Jeonse Loans
President Moon: "Ensuring No Hardship for Real Demand Borrowers Including Jeonse Loans"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] Ko Seung-beom, Chairman of the Financial Services Commission, hinted that the additional household debt measures to be announced in mid-month will include loans for actual demand borrowers such as jeonse loans. He emphasized that all available means must be mobilized before the rapidly increasing household debt becomes a ticking time bomb for the Korean economy. Chairman Ko raised his voice that even jeonse loans, which raise concerns about harm to actual demand borrowers, should only be taken out within the scope of 'repayment ability.'

However, since President Moon Jae-in mentioned jeonse loans that morning and urged, "Please make policy efforts so that actual demand borrowers do not face difficulties," financial authorities are expected to continue their final deliberations on measures to protect actual demand borrowers.

Chairman Ko appeared at the Financial Services Commission's audit by the National Assembly's Political Affairs Committee on the 6th and responded "Yes" to the question from Yoo Dong-su, a member of the Democratic Party of Korea, asking whether jeonse loans and group loans should also be tightened to achieve this year's household debt growth target of '6% range.'

Chairman Ko emphasized, "The recent cause of household debt increase is mostly loans for actual demand borrowers," adding, "Ultimately, if loans for actual demand borrowers are not restricted to be within the repayment range, it will be difficult to achieve the government's target (6% range)."

In fact, jeonse loans from the five major commercial banks surged by 14.02%, from 105.2127 trillion won at the end of last year to 119.967 trillion won as of the end of August. This is about 3.5 times the increase rate of mortgage loans (4.14%) during the same period.

Chairman Ko also said, "Strengthening household debt management is necessary at this point, and it is better to respond quickly as the problem could worsen if left unattended," adding, "Our household debt is showing one of the fastest growth rates in the world."

The problem lies in the side effects that may occur if loans for actual demand borrowers such as jeonse loans are tightened. A loan shortage is already occurring in the market, and if loans for actual demand borrowers are also regulated, the burden on ordinary people will inevitably increase. Recently, a rumor circulated widely on internet communities that financial authorities would completely restrict jeonse loans, which sparked significant attention. This is a clear example showing how great the anxiety of ordinary people about housing is.

In response, Chairman Ko said, "Since protecting actual demand borrowers is significant in cases such as jeonse loans and group loans, we will consider supplementary measures taking this into account." Earlier that day, President Moon also mentioned at a staff meeting, "Please make policy efforts so that actual demand borrowers do not face difficulties with jeonse loans, etc."

In the financial sector, it is strongly suggested that financial authorities protect actual demand borrowers indirectly by strengthening screening through banks rather than directly restricting jeonse loans. This involves carefully examining during the screening process whether the borrower has difficulty bearing the jeonse deposit or is using the jeonse deposit for other purposes. However, the consensus in the financial sector is that it is practically impossible to distinguish between investment demand and actual demand at bank counters.

Chairman Ko also hinted at lowering the prepayment penalty fees for policy mortgages such as the Bogeumjari Loan and Didimdol Loan. In response to a question from Kim Byung-wook, a member of the Democratic Party of Korea, asking "Why do prepayment penalties exist for policy financial products, and is there a need for a major innovation on this?" he replied, "We are considering lowering the prepayment penalty for policy mortgages, which is currently up to 1.2%, to half, 0.6%."

However, he expressed a negative view on abolishing prepayment penalties for commercial bank loan products. He explained, "It is difficult to abolish them all at once because commercial banks may face fund mismatches."

He also said that they are reviewing the establishment of a system to ensure that internal control systems within financial institutions operate effectively. Chairman Ko said, "Financial companies have internal control systems in place, but it is important that they function effectively," adding, "We plan to prepare measures such as clarifying the concept of internal control."

Chairman Ko said he would examine whether Dunamu, the operator of Upbit, has any issues with investor protection regarding its business practices such as unlisted stock trading services and virtual asset market fee monopolies. In response to lawmakers' criticism that Upbit virtually monopolizes the market, he said, "It seems necessary to check whether the existing company's business practices have any problems with investor protection."

Meanwhile, during the audit that day, opposition lawmakers criticized the Financial Intelligence Unit (FIU) for notifying the police about suspicious transactions related to Hwacheon Daeyu. They pointed out that the FIU only provided information without conducting investigations, which they considered a dereliction of duty, and also criticized the FIU for not confirming whether the information was provided. Yoon Chang-hyun, a member of the People Power Party, criticized, "The police confirm that they received it, so why can't the provider confirm it?" Chairman Ko only repeated the fundamental position, saying, "Due to confidentiality clauses in the contract, we cannot confirm it." Eventually, the debate over the FIU's authority related to Hwacheon Daeyu led to a heated exchange between ruling and opposition lawmakers and almost caused a disruption in the Political Affairs Committee's audit session.

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