“Sharing LTV information between banks constitutes tacit ‘collusion,’” and the Fair Trade Commission begins sanctions procedures against the four major banks

Fair Trade Commission points out “receiving unfair profits by sharing information on collateral items”
If the charges are acknowledged, a fine of hundreds of billions of won is expected.
“At the risk management level, collusion is overinterpreted”

The Fair Trade Commission has begun sanctions procedures after the four major domestic commercial banks, including KB Kookmin, Woori, Shinhan, and Hana, were found to have colluded transaction terms while executing collateral loans. Although these banks were acquitted in both previous allegations, the Fair Trade Commission reportedly began an investigation while leaving open the possibility of ‘tacit collusion.’ The banking industry immediately protested, saying that the government’s pressure on banks is increasing as the general election approaches.

Did the four major commercial banks interfere with loan terms favorable to consumers?

According to the financial sector on the 8th, the Fair Trade Commission completed its investigation into collusion between the four major commercial banks and sent a related review report. The review report reportedly included content that the banks under investigation carried out collateral loan business for individuals and companies and made unfair profits by colluding various transaction terms and conditions. The Fair Trade Commission’s review report has a similar function to the prosecution’s indictment in that it serves as the basis for various administrative dispositions.

In its review report, the Fair Trade Commission is said to have pointed out that the four major commercial banks colluded to prevent favorable loan conditions for consumers by sharing detailed information required for loans, such as loan-to-value ratios (LTV) for each product. After conducting an additional investigation of stakeholders based on previously obtained data, the Fair Trade Commission determined that collusion related to secured loans that undermined market competition order had continued for several years, and prepared an examination report with opinions on sanctions.

The review report also included opinions on imposing fines on the four major banks and filing complaints with the prosecution. Although the specific amount of the fine related to unfair profits has not been revealed, the prevailing opinion is that if the charges are acknowledged, a fine of at least hundreds of billions of won will be imposed as the profits earned by banks from collateral loans are significant.

Banking circles protest, “As general elections approach, the level of pressure on banks is increasing”

In the banking world, the counterargument that sharing information related to mortgage loans, including LTV, does not affect actual consumers’ transaction terms is gaining ground. LTV sharing is only a business process to derive reasonable conditions by analyzing cases from various angles in terms of risk management for collateral items. As the final loan terms and interest rate levels vary depending on each company’s calculation method and operating policy, it can be viewed as collusion. The claim is that there is no such thing.

It is pointed out that collusion is not easy with the base interest rate linked to the market interest rate as well as the additional interest rate applied by banks themselves. An official from a commercial bank explained, “Each bank has a different funding situation and lending strategy, so it is impossible to collude on interest rates even if they wanted to.” He added, “The additional interest rate is adjusted according to each bank’s circumstances, such as financing situation and total target loan amount.” .

Another financial industry official said, “In the case of household loan LTV, the Financial Supervisory Service controls housing mortgage risk management standards by region, and it is unreasonable to call sharing information for simple reference collusion.” He added, “The pressure on banks continues throughout this administration. “There is, but the level seems to be increasing as the general election approaches,” he said, conveying the mood in the industry.

However, some are of the opinion that the Fair Trade Commission’s investigation is an extension of this, as suspicions regarding collusion by commercial banks have been consistently raised. In fact, in 2008, the Fair Trade Commission judged that 17 financial institutions, including KB Kookmin and Shinhan Bank, had colluded in raising Giro fees and imposed a total fine of 44 billion won. At the time, the banks filed an administrative lawsuit at the Seoul High Court, and the Fair Trade Commission lost the case, which went to the Supreme Court, and the fine was canceled. Afterwards, in 900, an investigation was conducted into allegations of collusion in certificate of deposit (CD) interest rates among the four major banks, NH Nonghyup Bank, and SC First Bank. The Fair Trade Commission conducted an investigation over approximately four years, but ultimately ended the deliberation process empty-handed.

This review report is the result of an investigation into suspicions of collusion in loan interest rates and fees among commercial banks that have been ongoing since February of last year, and the suspicions of collusion in loan interest rates raised at the beginning of the investigation were not included in these sanctions. In addition, NH Nonghyup Bank and IBK Industrial Bank, which were included in the on-site investigation, were also excluded from the final sanctions.