KB, Shinhan, Woori, Hana slapped with hefty fine over mortgage loan collusion

A pedestrian walks past a Woori Bank ATM in Seoul, Sunday. Yonhap

Korea’s four major banks — KB Kookmin, Shinhan, Woori and Hana — have been slapped with a combined fine worth 272 billion won ($183.8 million) for engaging in collusion when selling mortgage loans, the Fair Trade Commission (FTC) said Wednesday.

According to the watchdog, the major banks unfairly shared information on real estate loan-to-value (LTV) ratios nationwide, in an apparent move for each to maintain the ratio at a similar level. This enabled them to evade competition and reduce risks when mapping out sales strategies, the antitrust authority said.

The ratio is a key barometer in determining the total amount of loans banks can offer to property owners. The banks set the ratio for all the properties across the nation and adjust the figure when necessary.

The four banks exchanged relevant information, even if they were aware that the practice was in violation of the law, the FTC said. The watchdog’s latest investigation also found out that the banks' working-level officials, who carried out the tasks, deleted all the traces of the unfair practice.

Hana Bank faced the highest fine of about 87 billion won. KB Kookmin Bank came in second with a fine of about 70 billion won. Shinhan Bank and Woori Bank followed with fines of 63.8 billion won and 51.5 billion won, respectively.

The banks generated stable operating profits through the collusion, which also limited customers’ options to choose banks, as they offered a very similar ratio level. In Korea, the four banks account for some 60 percent of the mortgage loan market share.

Other banks, which did not join the collusion, offered a ratio about 7.5 percentage points higher than the average figure of the four main banks in 2023, according to the FTC investigation.

The reduced LTV ratio makes it harder for borrowers to finance capital from banks. As a result, borrowers are forced to rely on other types of loans with interest rates typically set at a higher level than mortgage loans.

Aside from individual borrowers, small- and medium-sized enterprises (SMEs) were also affected by the practice, because their credit ratings are lower than big firms. As a result, they have more dependence on mortgage loans for their business.

The FTC said the latest investigation will help boost fair competition in the banking industry and enhance the rights and interests of customers.

The latest incident is significant, as it was the first case that violated a rule on collusion after the revised Fair Trade Act took effect on Dec. 30, 2021.

“We will strengthen monitoring on such unfair information-sharing practices not just in finance, but other industrial areas,” an official from the watchdog said. “Any firms that violate the rule will be sternly punished.”