The Korea Association of Property Appraisers formally asked the Financial Services Commission to correct banks' in-house collateral appraisals and to present an implementation plan for the improvement principles agreed to last year. The association said the Financial Services Commission (FSC) has failed to roll out clear follow-up measures such as administrative guidance, even nine months after agreeing to prepare improvements.
According to the association on the 18th, it sent an official letter titled "Request for corrective measures on illegal appraisal practices by banks and for a reply to inquiries" to the Financial Services Commission (FSC) on the 14th. In the letter, the association asked about the FSC's official position and resolution plan regarding banks' in-house appraisals, as well as the reasons why corrective measures have not been implemented so far. It also requested a public answer on whether the FSC is checking the status of in-house appraisals at the four major commercial banks.
At the heart of the dispute is whether banks hiring appraisers directly to assess the value of collateral is permitted under current law, with government ministries, banks, and the appraisal industry differing in their interpretations.
Article 5, Paragraph 2 of the Act on Appraisal and Certified Appraisers stipulates that when a financial institution seeks to appraise land in connection with lending or the purchase, sale, or management of an asset, it must commission an appraisal corporation, among others. Citing this, the association argues that banks employing appraisers directly to perform appraisal work violates the law.
The banking sector says the Financial Supervisory Service's detailed regulations for the enforcement of bank supervision provide a basis for calculating collateral value in-house. If there are credible external market prices or if internal standards can be applied for collateral, banks can calculate the value directly, it says. KB Kookmin Bank has also maintained that its in-house collateral valuation has followed supervisory rules and poses no legal problem.
In September last year, the Ministry of Land, Infrastructure and Transport issued an authoritative interpretation that KB Kookmin Bank's practice of valuing collateral through its affiliated appraisers violates the appraisal law. Even if the detailed supervisory regulations for banking are interpreted as allowing in-house evaluations, the intent is that a lower-level administrative rule cannot contravene a higher law.
Since September last year, the association has held rallies in front of the new building of KB Kookmin Bank in Yeouido, Seoul, calling for a halt to in-house appraisals. According to the association's tally, KB Kookmin Bank's in-house appraisal amount nearly tripled over the past three years. The association argues that the expansion of banks' in-house assessments encroaches on the external appraisal market and could undermine the independence of appraisals.
The Financial Services Commission (FSC) placed more weight on system improvements through consultations with related agencies than on immediate corrective action. On Oct. 22 last year, the association and the FSC agreed to "principles for improving banks' in-house collateral valuation methods" and submitted them in writing to the National Assembly. The Financial Services Commission chair also said at the National Policy Committee's audit on the 27th of the same month that the agency would draw up an improvement plan based on the principled agreement.
Afterward, the association, the Financial Services Commission (FSC), the four major commercial banks, and the Korea Federation of Banks held two joint meetings and continued discussions through February this year. However, the association said talks effectively stalled after that, and the FSC did not issue administrative guidance or present an improvement plan.
Yang Gil-su, head of the association, said, "We are doing our best to reach an agreement, but the banking sector's passive stance is making the process difficult," and added, "We are waiting as long as possible in the hope the banking sector will change its stance."