Presidential Candidates Say "Provide Basic Loans and Loosen LTV More"... Banks Growing Anxious

Lee Jae-myung and Yoon Seok-yeol Candidates' Financial Policies Emerging One After Another
"For the People" Policies Claiming Goodwill Still Need to Consider Side Effects

Bankers Association Demands "Banks Creating High-Level Jobs for Youth, Please Ease Regulations"

Yoon Seok-yeol, the People Power Party presidential candidate (left), Lee Jae-myung, the Democratic Party presidential candidate (right)

[Asia Economy Reporter Shim Nayoung] "We will implement the 'Youth Basic Loan,' which lends money up to 10 million won at bank interest rates. We will also implement the youth 'Basic Savings' with a limit of 10 million won, offering higher interest rates than regular deposits." (Lee Jae-myung, Democratic Party presidential candidate)

"We will require commercial banks to disclose the difference between deposit and loan interest rates. If the interest rate gap increases sharply, we will investigate whether there is any collusion." (Yoon Seok-youl, People Power Party presidential candidate)

As the two major party presidential candidates put forward financial pledges pressuring the banking sector, banks are watching anxiously. Even if the policies are designed to fill the pockets of the public, market disorder could cause side effects. The banking sector is demanding deregulation and promotional policies to level the 'tilted playing field' where they compete with big tech companies.

Lee Jae-myung Pulls Banks into the 'Basic' Series
Yoon Seok-youl Calls for Disclosure of Deposit-Loan Interest Rate Gap

Last week, Lee announced youth policy pledges that included the banking sector in the 'Basic' series. He announced the introduction of a youth basic financial system including loans. The idea is to help youth prepare for employment and entrepreneurship by allowing them to borrow up to 10 million won at bank interest rates for a long period. The government will support loan guarantees, bearing the risk of defaults. Even assuming a 5% default rate, it is expected that about 50 billion won in budget will be needed for 1 trillion won in basic loans. Youth Basic Savings is also one of the two pillars of the youth basic financial policy.

Yoon announced plans to disclose the deposit-loan interest rate gap of commercial banks. Since the end of last year, as the Bank of Korea raised its base rate, banks have successively raised their interest rates. During this process, loan interest rates rose faster than deposit rates, widening the gap, which led to this pledge. The policy states, "If the deposit-loan interest rate gap increases sharply when the base rate changes, the gap will be periodically disclosed and investigated for collusion to protect financial consumers."

Both Candidates Pledge to Ease Real Estate Loan Regulations for First-Time Homebuyers
Increased Loans and Falling House Prices Could Increase Household Burden

[Image source=Yonhap News]

Both candidates, who have criticized the Moon Jae-in administration’s real estate policies, recently stated their intention to ease loan regulations focused on actual demand.

"We will ease LTV (Loan-to-Value ratio) up to 90%, but apply differentiated measures in Seoul and other metropolitan areas. DSR (Debt Service Ratio) will be eased only for first-time homebuyers." (Lee)

"For first-time homebuyers or youth housing, I think it is not a big problem to significantly ease loan regulations and raise LTV to 80%." (Yoon)

Currently, first-time homebuyers with income under 100 million won and purchasing homes under 500 million won in regulated areas can have an LTV up to 70%. Non-regulated areas also have about 70%. LTV refers to the recognized asset value when borrowing money secured by a home. Easing this ratio means borrowing more to buy a house, increasing household debt, and if house prices fall, it could become a burden on households, which is a concern in the financial sector. Ultimately, without clear standards on income, housing prices, and speculative adjustment in non-regulated areas, only side effects may occur.

Banks: "Financial Industry is a Sector for Creating High-Level Youth Jobs"
"To Compete with Big Tech, Regulations Must Be Eased"

Amid ongoing political pressure, banks are raising their voices asking presidential candidates to also create promotional policies. The core demand is to fix the 'tilted playing field' by easing regulations as they compete with big tech (large IT companies). The financial industry is a field that creates high-level jobs desired by youth, and growth requires support policies.

Kim Kwang-soo, chairman of the Korea Federation of Banks, said, "I hope to see many pledges aimed at fostering the financial industry itself," urging deregulation. He pointed out, "Big tech can already enter finance through the Electronic Financial Transactions Act or Internet Banking Act, but banks’ non-financial business expansion is still extremely limited. Big tech can easily secure both financial and non-financial data, but banks face great difficulty in securing non-financial data."

He also said that the MyData system (personal credit information management) starting this year puts banks at a disadvantage. "Banks must provide detailed financial transaction information, including the most confidential personal motives for remittances, but big tech provides only broad categories of commercial information, mostly classified as 'others,' so banks are effectively not receiving meaningful information."

Banks also requested easing the 15% investment limit regulation on non-financial companies to allow investment in fintech and lifestyle services. Regarding the need to establish internet-only banks within banking groups, he said, "The intention is to open the way for existing banks to establish separate organizations strategically so they can develop and provide agile, customized services to target customer groups."

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