Financial regulator highlights self-regulation in bank loans, apologizes for confusion

Financial Supervisory Service Gov. Lee Bok-hyun apologized for sowing confusion with mixed signals about loan regulations, and stressed self-regulation by banks in loan issuance.

Financial Supervisory Service Gov. Lee Bok-hyun, second from left, speaks during a meeting with bank CEOs held in central Seoul on Tuesday. [NEWS1]

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun apologized for comments that were widely interpreted as mixed signals about ongoing loan tightening that prompted banks to reverse their stringent lending policies.

"I apologize for causing difficulties and inconveniences for the public and bankers by failing to deliver a more refined message regarding the recent rapid growth in household debt,” the head of Korea’s financial watchdog told the press after attending a meeting in central Seoul with chief executives from banks on Tuesday.

The apology came after Lee made comments recently that were perceived to indicate a potential easing of loan regulations, which nudged banks to partially reverse their loan-tightening policies, a move that heightened market confusion.

During a meeting with potential homebuyers on Sept. 4, Lee said, “We will review policy measures related to loans that may hurt those seeking to buy a home for personal use,” as opposed to those whose primary purpose is investment. The comment came as banks began to significantly tighten loans for housing transactions, even suspending the issuance of loans for homeowners, amid steep growth in the household debt level.

On Tuesday, the FSS governor emphasized self-regulation regarding household loan policies during the meeting with CEOs and top executives at 18 banks operating in Korea.

“The regulations imposed by the financial authorities are the minimum standards that should be complied with by default, and banks need to bolster [loan policies] on a voluntary basis for their risk management,” said Lee in his remarks.

“There has been growing interest and concern from the market regarding the voluntary household loan policies implemented by each bank, with some borrowers experiencing inconveniences,” the governor said, but added that “this issue is something we need to address and solve in order to normalize voluntary practices in the future.”

Korea’s major banks have been tightening loan issuance to curb the rapid rise in household debt over the past few months. However, they were met with signals from the financial authorities appearing to encourage consideration of demand from homebuyers looking to purchase a home not as an investment but as an actual residence.

As such, banks are introducing exemption clauses for their stricter mortgage loan policies.

Shinhan Bank decided to issue mortgage loans only to individuals who do not currently own a home starting Tuesday. The maximum amount of credit is also capped at the borrower’s annual income level, though exceptions can be made for significant life events, such as weddings, funerals or childbirth.

KB Kookmin Bank also said on Tuesday that individuals who already own a home can be granted mortgages for housing transactions only if they plan to sell the existing home, or in the case of significant life events.

Woori Bank, which suspended loans sought for the purpose of purchasing additional residential properties in Seoul and the surrounding regions for all homeowners, issued a release listing the conditions for an exception to their tighter loan limits on Sunday as well.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]