State firms criticized for maintaining low-interest loans for employees

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By Anna J. Park

Amid the government's efforts to raise loan interest rates to curb soaring asset prices, some state-run companies have ignored the government's call to impose higher interest rates when it comes to providing their own housing loan plans to employees.

The finance ministry sent guidelines to state and public institutions early last month, urging them to impose higher loan interest rates than the bank household loan rate announced by Bank of Korea (BOK) when the institutions provide special housing loans for their employees. The finance ministry also asked the state-run institutions to apply a certain loan-to-value ratio (LTV) ― limiting the loan amount according to a lender-assessed value of their property ― as well as a loan cap of 70 million won ($60,500).

The guidelines are supposed to be implemented starting later this week, and it is the finance ministry's plan to impose penalties in the firms' management assessment.

However, it doesn't seem likely that the state institutions will follow the government's guidelines anytime soon. This is mainly due to opposition from each institution's labor union. Since any policies regarding employees' welfare and treatment need to be coordinated with labor unions, it is not likely that the guidelines could take effect immediately.

According to the National Assembly Budget Office, Korea Securities Depository provided employee-only housing loans with interest rates as low as 0.69 percent. With such low interest rates, the amount of the entire loans newly provided this year increased by three times compared to 2020.

The Busan Port Authority provided interest rates as low as 0.64 percent for their staff-only housing loans, while the Korea National Oil Corporation gave housing loans for their employees at an interest rate of 1.35 percent, all resulting in a sizable increase in new loans.

Korea Development Bank also provided employee-only housing loans at an interest rate of 1.68 percent, and the amount of newly provided loans stood at 3.32 billion won, up 85 percent from the previous year.

There are concerns that some of these state companies, including Korea National Oil Corporation, are failing to manage their financial status by easily giving super low-interest rate loans even though they are suffering from capital impairment.