In the Era of High Interest Rates, 'Debt' from Prestigious Jobs: In-Company Loans at 1%... HUG and Korea Expressway Corporation Exceed Guidelines on Loans

JDC Offers 1% Interest Employee Loans for Housing Funds as of Last Year with Repayment Up to 15 Years
Regulations Limiting Maximum Loan to 70 Million KRW Also Violated
Among 43 Cases Executed This Year, 37 Exceed Loan Limit at Korea Expressway Corporation

[Asia Economy Reporter Oh Ju-yeon] #A, an employee at Jeju Free International City Development Center (JDC), borrowed 100 million KRW at an interest rate of 1.75% through an in-house housing loan in the first half of 2020, when housing prices were on the rise. This amount has a maturity date until 2037, so it can be repaid over the next 15 years. One year later, in 2021, employees of the company were able to borrow money at a lower interest rate; those who borrowed between 80 million and 100 million KRW at that time can repay the loan until 2038 at the latest. The applied interest rate is 1.00%.

It has been revealed that public institutions under the Ministry of Land, Infrastructure and Transport, such as JDC, Korea Expressway Corporation, and Housing and Urban Guarantee Corporation (HUG), have been operating preferential in-house loan systems in violation of government guidelines that require setting in-house loan interest rates based on market interest rates. In particular, as the Bank of Korea’s base rate hikes have led to expectations that variable-rate mortgage loan interest rates will exceed 7% within the year, some institutions continue to maintain ultra-low interest loan systems with differences of up to about 5 percentage points compared to market interest rates, drawing attention to the government’s future response to the public institutions’ lax management.

Jeju Free International City Development Center (JDC) Panorama

According to data submitted by JDC, Korea Expressway Corporation, and HUG to Kim Doo-kwan, a member of the National Assembly’s Land, Infrastructure and Transport Committee from the Democratic Party of Korea, these institutions have been providing employees with loans at 'ultra-low interest rates' compared to market rates.

In the case of JDC, as of 2021, in-house loans are operated with interest rates of 1% for housing funds, 1.5% for living stabilization funds, and zero interest for tuition loans. As a result, preferential loans totaling about 3 billion KRW have been made. The repayment period is also between 2030 and 2035, allowing repayment over a maximum of 15 years.

Korea Expressway Corporation provided in-house loans at interest rates in the 1% range until last year. As of 2021, the interest rates for housing purchase and rental housing loans were set at 1.95% and 1.8%, respectively, including year-end recognized taxation. The repayment terms are 'within 5 years grace period and within 20 years total.' Starting from August this year, the Bank of Korea’s published interest rate will be applied for the first 5 years, and for periods exceeding 5 years, the overdraft interest rate according to the Corporate Tax Act will be applied.

HUG also operates housing purchase and rental loans at interest rates lower than market rates. The interest rate for housing purchase loans is 3%, and even this is significantly low at 2% for the first 5 years.

In particular, criticism arises as these public institutions ignore government guidelines. The 'Guidelines on Public Institution Innovation' announced by the government last year stipulate that in-house loan interest rates should be determined considering market interest rates. However, the ultra-low interest loan system is maintained under the pretext of welfare.

Furthermore, according to the guidelines, the loan limit for housing funds should be applied up to a maximum of 70 million KRW, but Korea Expressway Corporation and Housing and Urban Guarantee Corporation did not comply. Among the total 43 housing purchase loans executed by Korea Expressway Corporation this year, 37 exceeded the government’s suggested maximum loan limit. Housing and Urban Guarantee Corporation executed loans ranging from a minimum of 70 million KRW to a maximum of 200 million KRW.

Assemblyman Kim Doo-kwan said, "In a situation where unprecedented high inflation and high interest rates are increasing the suffering of ordinary people, public institutions are enjoying privileges," and added, "Public institutions themselves need to improve in-house loan guidelines and actively cooperate with government recommendations."

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