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| A model promotes KB Kookmin Bank's new foreigner-only housing loan product for "jeonse payments." / Courtesy of KB Kookmin Bank |
By Park Jae-hyuk
It may have been expected that KB Kookmin Bank's recent announcement of its new foreigner-only housing loan product for "jeonse" payments would be good news for foreign residents in Korea.
But the bank's recent decision, which was announced shortly after the government measures to tighten real estate regulations, also raised doubts about the lender's hidden intentions, considering Korean banks have long remained reluctant to provide loans to foreigners.
According to the banking unit of KB Financial Group, non-Korean tenants will be able to borrow up to 200 million won ($167,000) at a minimum interest rate of 2.47 percent, starting this month. Applicants must have visas with three months validity and proof of income in Korea.
This is the nation's second "foreigner-only" jeonse loan introduced by a major commercial bank, following that of Shinhan Bank in 2017.
Jeonse, a massive cash deposit, is a real estate practice unique to Korea in leasing homes. The renter pays the landlord a large sum of money as a returnable deposit instead of paying monthly rent.
"Our product was launched to provide residential stability to foreigners living in Korea long term," a KB Kookmin Bank official said. "We will take the lead in offering residential support to our customers facing difficulties in accessing financial services."
The timing of the KB launch, however, comes just two weeks after the government announced a strict housing market regulation, June 17. This regulation prohibits banks from offering jeonse loans to those who bought apartments costing over 300 million won in "speculative" zones, in order to get people to only purchase a single home to live in, without making speculative investments.
Hana Financial Investment analyst Choi Jung-wook said the banks could suffer falling profits due to this measure, saying, "Its impact could be bigger than expected, because banks should immediately collect jeonse loans from their customers who bought apartments priced over 300 million won."
For Korean banks, jeonse loans have been regarded as a lucrative source of income because the loan's maturity is shorter than that of mortgages and a government-run institution guarantees the principal.
From that standpoint, KB's sudden decision could be interpreted as exploiting expats to offset possible decreased earnings.
This concern seems founded considering the fact that KB and other Korean banks have avoided providing loans to those without Korean citizenship in the past, citing the risk of default and difficulties in credit scoring.
According to the Korea Credit Information Services, 61,000 foreigners borrowed money from local financial firms in 2017, 0.3 percent of the total borrowers in Korea. The outstanding balance of foreigners' loans was 4.7 trillion won, which was 0.3 percent of the nation's total loan balance.
A full-time English tutor with an F2-7 visa also told The Korea Times previously that her application for a 3 million won loan had been rejected by one of major commercial banks here, because of one simple reason ― her foreign nationality.
"I couldn't get a loan, even though I have many references and Korean family with good credit background. So I could not move and I was forced to renew my housing contract for the home I currently live in," she said, adding she felt like a bankrupt person.
If Korean banks are truly eager to win the hearts of foreign residents, they require preemptive efforts to meet customer demands.
Having failed to do so prior to now, KB seems to have changed its stance in the face of potential revenue losses stemming from real estate speculation reform.
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