[The Editors' Verdict] Blaming Only Banks Solves Nothing

The recent remarks made by Lee Bok-hyun, Governor of the Financial Supervisory Service, regarding the increase in household loans centered on mortgage loans and the interest rate issue are perplexing. He stated, “It is wrong for banks to raise the amount (interest rate) instead of managing the volume or conducting appropriate micro-management,” and added, “The rise in loan interest rates is not something the authorities desire,” which is particularly off the mark.

What exactly is meant by ‘appropriate micro-management’? The only way to micro-manage consumer sentiment?stimulated by the market environment and the government’s inconsistent policies, which signal ‘once again, all-in borrowing’?to reduce borrowing is through harsh socialist-style control.

Whether the business, profitability, and governance structures of Korean banks are proper is another matter. Everyone knows that the authorities, alarmed by the surge in mortgage loans and the sharp rise in apartment transaction prices, have long had the practice of frequently summoning bank officials to instruct them to curb lending.

These pressured banks have no choice but to add margins to mortgage loan interest rates, leading to the peculiar phenomenon where mortgage loan rates exceed market interest rates, or the lowest mortgage rates at commercial banks are higher than the lower bound of some insurance companies’ mortgage rates. Governor Lee places full blame for this solely on the banks.

His diagnosis that banks “responded by raising mortgage loan interest rates, which is the easiest and most profitable” is somewhat excessive. The increase in mortgage loans is driven by the 30s and 40s age group, the most active economic participants. Blocking their borrowing as much as possible and then charging slightly higher interest from those who still want to borrow makes it unclear how much actual profit improvement this would bring.

Putting all this context aside, banks have begun raising lending barriers more physically in response to his assertive call that “stronger intervention may be necessary.” They are tightening loans for living stabilization funds secured by housing, restricting overdraft accounts mainly used by salaried workers, and even partially suspending the handling of jeonse (key money deposit) loans. There have also been cases where banks have stopped offering interest-only mortgage loans where principal repayment is deferred.

This amounts to overt government control, which ultimately shakes the entire loan market. It is unclear who will take responsibility for the damage suffered by real borrowers who urgently need living funds or must move and thus knock on bank doors.

There is no sin in the desire of ordinary and middle-class people to own their own homes. The most fundamental way to control this is through an honest approach based on the principles of supply and demand. Not long ago, the government pumped tens of trillions of won into real estate through various policy finance measures and encouraged interest rate reductions by promoting loan refinancing.

What about pressuring the monetary authorities to lower interest rates? Meanwhile, the government pushes banks to reduce lending, insists there is no problem with housing supply, and then abruptly shifts to a ‘full-scale supply’ policy?there is no reason for the market to trust such a government.

We witnessed throughout the previous administration how the government’s disregard for basic market principles, using policy as a weapon and banks as a shield to control loans and real estate, led to negative outcomes. The current administration’s blatant display of government control and market distortion is essentially no different in nature from that of the previous government.

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