Bank of Korea's Mortgage Loan Program Undermines Policy Goals

Strategic Insights -

The Bank of Korea's decision to provide mortgage loans to its employees through a benefit program has raised eyebrows, as it undermines the central bank's policy goal of curbing lending demands for housing purchase. According to Rep. Cha Gyu-geun of the Reform Korea Party, the program allows BOK employees to borrow more than commercial lenders would, by not reporting the loans to credit rating agencies. This practice contradicts BOK's recommendation for stricter macroprudential policies to keep mortgage borrowing under control.

Key Takeaways:

  • The Bank of Korea granted a total of 4.5 billion won in housing loans to 112 employees as of the end of March, with an average borrowing amount of 38 million won per person.
  • The interest rate on these loans was around 3.4 percent, lower than the 4.2 percent average interest rate on mortgage loans extended by commercial banks in the first quarter of this year.
  • BOK employees can borrow up to 50 million won for housing, provided they have worked there for at least a year, and can repay the principal and monthly interests over 20 years or through jeonse contracts.
  • The Financial Supervisory Service (FSS) reportedly scrapped its employee housing loan program in 2020 and only offers assistance for employees in remote regions with loans for living expenses.
  • Rep. Cha Gyu-geun criticized the BOK's program, citing its generosity compared to other state-run organizations or financial institutions.
  • The BOK official defended the program, stating that it helps housing needs for employees and prevents property investments.

Statistics:

  • 4.5 billion won: Total amount of housing loans granted by the Bank of Korea to its employees as of the end of March.
  • 112: Number of BOK employees who received housing loans.
  • 38 million won: Average borrowing amount per person.
  • 3.4 percent: Interest rate on loans granted by the BOK.
  • 4.2 percent: Average interest rate on mortgage loans extended by commercial banks in the first quarter of this year.
  • 50 million won: Maximum amount BOK employees can borrow for housing.
  • 2020: Year the Financial Supervisory Service (FSS) scrapped its employee housing loan program.

Sources:

  • Rep. Cha Gyu-geun, "BOK's employee mortgage program undermines policy goals," cited in _Han Kyoreh_ (no date specified).
  • Bank of Korea official, cited in _Han Kyoreh_ (no date specified).
  • Data submitted by the BOK to Rep. Cha Gyu-geun.