Over 120,000 Police Officers' Exclusive 'Mugunghwa Loan'
Limit Doubled from 100% of Annual Salary
Maintaining Exceptional Preferential Interest Rate of 1.5% Points
"A Decision Based on Social Contribution, Not Money"
[Asia Economy Reporter Song Seung-seop] KB Kookmin Bank has decided to double the limit of the police-exclusive financial product ‘Mugunghwa Loan’ starting from the second half of the year.
According to the financial sector and the National Police Agency on the 8th, since last month, the limit for the Mugunghwa unsecured loan has been set at 200% of the annual income. This is twice the previous limit, which was up to 100% of the annual salary since July last year. This decision came after discussions between the National Police Agency and KB Kookmin Bank regarding the details of the Mugunghwa Loan financial agreement starting in June.
The Mugunghwa Loan is an exclusive product available only to about 120,000 police personnel. In exchange for the police signing an exclusive contract with one bank, the bank offers preferential interest rates and loan limits. Originally, Shinhan Bank provided the ‘Chamsuri Loan,’ but in 2017, KB Kookmin Bank won the business rights. Recently, the Police Welfare Council reselected KB Kookmin Bank as the designated lender for the police officer agreement loan from 2022 to 2027.
The Mugunghwa Loan is known for its exceptional benefits even within the financial sector. Although there is no fixed base interest rate and the exact loan rate is not publicly disclosed, the preferential interest rate can reach up to 1.5 percentage points. When the program first started in 2017, interest rates as low as 1.89% were possible. Despite the recent significant rise in the base interest rate, the loan interest rate is known to be in the low 3% range.
Because of this, there were many concerns within KB Kookmin Bank that the Mugunghwa Loan might be operating at a negative margin. When it was announced that KB Kookmin Bank was reselected as the lender for this year’s police agreement loan, employees at frontline branches and sales departments voiced concerns saying, “The more we sell, the more we lose.” The Financial Supervisory Service also pointed out at the time KB Kookmin Bank first won the business that “the bank did not properly check profitability during the bidding process for the Mugunghwa Loan.”
Despite these concerns, KB Kookmin Bank cited the bank’s social contribution as the reason for increasing the loan limit. A KB Kookmin Bank official explained, “Police officers are always exposed to danger, and they contribute to public safety and stability of people’s livelihoods,” adding, “The bank provides financial benefits for them.”
It also serves to restore the loan limits that had shrunk due to household loan regulations last year. In the second half of last year, the Moon Jae-in administration issued directives to reduce the rapidly increasing household loans, which led to the Mugunghwa Loan limit being reduced to 100%. Earlier that year, the limit was 200%, and in 2020, it ranged from 200% to 250%.
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