Korea's Woori Bank will strengthen regulations on the collateral recognition ratio (LTV) applied to housing mortgage loans for housing rental and sales businesses. This is a measure to prevent the misuse of business loans for the purpose of evading the household loan regulations introduced on June 27.
According to the financial sector on the 24th, Woori Bank expanded its 'LTV 30%' loan regulation, which was previously applied only to housing rental and sales businesses in regulated areas (Gangnam, Seocho, Songpa, and Yongsan districts of Seoul), to the metropolitan area starting from the 22nd.
Earlier, the administration of Moon Jae-in completely banned housing mortgage loans for housing rental and sales businesses in July 2020. Subsequently, the administration of Yoon Suk-yeol relaxed the regulations, and as of March 2023, an LTV of 30% applies in regulated areas, while 60% is applied in non-regulated areas.
Woori Bank has also completely halted corporate loans for the purpose of purchasing dwellings in the metropolitan area. Currently, loans are not being approved for corporations only when purchasing dwellings in regulated areas. This is interpreted as a measure to restrict corporations from buying dwellings for speculative profit under the guise of rental business.
A Woori Bank official noted, "This is a self-regulatory measure to strengthen criteria regarding attempts to handle corporate loans, including business loans aimed at evading the June 27 loan regulations." Business loans have a lower intensity of regulations, such as LTV, compared to housing mortgage loans. When using real estate as collateral, loans can be obtained up to an LTV of 85%, leading to many cases of misuse as a workaround for purchasing dwellings.
For instance, Yang Mun-seok, a member of the Democratic Party of Korea, was found to have registered his college student child as a business entity in April 2021 to obtain a loan of 1.1 billion won under the guise of purchasing an apartment in Seocho-gu, Seoul. In the first trial, Yang received a suspended prison sentence, and in the second trial on the same day, he was sentenced to lose his parliamentary position.
Financial authorities have commenced on-site inspections to catch such 'tricks.' If it is found that business loans are not being used for their intended purposes or if false documents are submitted, the loans will be immediately recalled, and new loans will be restricted. Additionally, if financial companies are found to have neglected management and supervision or colluded with their employees, stringent administrative sanctions will be imposed.