BOK’s low-interest mortgage loans for employees draws criticism

An aerial view of an apartment complex in Seoul / Yonhap

The Bank of Korea (BOK) is granting mortgage loans to employees as part of a benefit program, undermining its policy goal of curbing lending demands for housing purchase, a lawmaker said Monday.

Criticism centers on the fact that BOK employees are able to borrow more since the central bank-extended loans are not reported to credit rating agencies. This allows them to partly bypass the credit screening by commercial lenders.

For example, loans granted by commercial lenders will be limited to 100 million won ($73,150) per person, but a BOK employee may be able to borrow up to 150 million won because of their employee benefit program.

The interest rate on mortgage loans extended by commercial banks averaged 4.2 percent in the first quarter of this year, higher than the 3.4 percent that BOK offered to its employees.

This practice significantly undercuts BOK’s recommendation that Korea spearhead structural reforms to curb debt-financed capital concentration in the Seoul metropolitan housing market and that stricter macroprudential policies be implemented to keep mortgage borrowing under control.

According to data submitted by the BOK to Rep. Cha Gyu-geun of the Reform Korea Party, the central bank granted a total of 4.5 billion won in housing loans to 112 employees as of the end of March. This means 38 million won in borrowing per person was extended at an annual interest rate of around 3.4 percent.

The BOK allows employees who do not own homes to borrow up to 50 million won for housing, provided that they have worked there for at least a year. The principal and monthly interests are to be paid over 20 years if they buy a house.

In cases where they opt for jeonse contracts, the principal and interest are to be repaid after the leasehold contract is over. Unique to Korea, jeonse is a home-renting system whereby tenants pay a lump sum refundable deposit in lieu of monthly rent.

These terms are too generous compared to other state-run organizations or financial institutions, according to Cha, a member of the National Assembly’s strategy and finance committee.

“For example, the Financial Supervisory Service (FSS) scrapped an employee housing loan program in 2020,” Cha said. “The FSS only offers assistance for employees in remote regions with loans for living expenses.”

The BOK said the employee benefit program helps housing needs for employees.

“Loans are provided only to employees who do not own homes to prevent property investments,” a BOK official said.