On the Day of Jeonse Loan Regulations, DLF Will Also Be Addressed

Financial Authorities to Announce Detailed Enforcement Plan for Regulations as Early as the 16th; Financial Companies' Disciplinary Committee to Convene

[Asia Economy Reporter Jo Gang-wook] Financial authorities are set to announce detailed enforcement measures for the jeonse loan regulations as early as the 16th. On the same day, a disciplinary committee will be held to determine the level of sanctions against financial companies involved in the overseas interest rate-linked derivative-linked fund (DLF) incident. Market attention is focused on the announcement of these two issues, which have been hot topics in the financial sector since last year.

According to financial authorities and the banking sector on the 14th, the financial authorities plan to announce detailed enforcement measures for the jeonse loan regulations included in the '12.16 Housing Market Stabilization Plan' as early as the 16th. This comes one month after the government announced on the 16th of last month that it would restrict the use of private (SGI Seoul Guarantee Insurance) jeonse guarantees for homeowners with properties valued over 900 million KRW and would recall jeonse loans if the borrower purchases a home worth more than 900 million KRW.

A financial authority official stated, "The policy is to minimize exceptions to the recall of jeonse loans," adding, "We are currently finalizing the detailed enforcement decree to present exception rules and practical enforcement measures for the recall of jeonse loans."

Initially, it was expected that exceptions could be granted for special reasons such as caregiving, job transfer, education, or parental support. For example, if a person living in jeonse in a provincial area moves their workplace to Seoul and purchases a high-priced home without renting a jeonse or monthly rent house. However, if it is not recognized as an unavoidable reason but rather a personal choice, it is unlikely to be included in the exception rules.

However, there are also concerns that it is practically difficult for banks to frequently verify whether jeonse loan borrowers have purchased a home during the loan period. Currently, banks check this when issuing new loans or extending maturities. It is explained that it is impossible to periodically track and monitor whether tens of thousands of jeonse loan borrowers have actually purchased homes. Because of this, it is anticipated that the trial-and-error period may be prolonged.

Additionally, on the same day, a disciplinary committee will be held to determine the level of sanctions against banks and their executives related to the DLF incident, which caused massive principal losses. The targets are Woori Bank and Hana Bank, the sellers, and the heads of the two banks. The level of sanctions is the main point of interest.

Last month, the financial authorities notified Son Tae-seung, Chairman of Woori Financial Group and CEO of Woori Bank, and Ham Young-joo, Vice Chairman of Hana Financial Group (former CEO of Hana Bank), of a severe disciplinary action called a 'reprimand warning' for inadequate internal controls, while informing Ji Sung-kyu, CEO of Hana Bank, of a lighter disciplinary action. If an executive receives a severe disciplinary action, not only is reappointment affected, but employment in the financial sector is restricted for 3 to 5 years.

Chairman Son succeeded in his reappointment last month, but the level and timing of sanctions could pose obstacles. If the disciplinary committee's decision is made after the shareholders' meeting scheduled for March, it will not affect reappointment. Similarly, if Vice Chairman Ham's severe disciplinary action is confirmed, it could disrupt the future succession plan of Hana Financial Group. It is known that each bank is putting all efforts into preparing for this disciplinary committee, which will be held under a grand hearing system.

A financial sector official predicted, "Since the disciplinary committee will be held under a grand hearing system where the sanctioned individuals and the Financial Supervisory Service's inspection department have equal rights to testify and present their arguments, intense disputes are expected," adding, "Given that the reappointment of the heads of each financial company is at stake, they will inevitably fight hard to lower the level of sanctions."