[Why&Next] Fair Trade Commission refocuses on 'LTV collusion'... causing only confusion?

On-site Investigations at Shinhan and Woori Followed by KB Kookmin and Hana
First Probe into 'Information Exchange Collusion' Draws Attention
Key Issue: Proving Market Competition Was Restricted... Likely to End in Administrative Lawsuit

The Fair Trade Commission (FTC) has begun a re-examination of the suspicions of collusion regarding the Loan-to-Value (LTV) ratios among the four major banks (KB Kookmin, Shinhan, Hana, and Woori Bank). This comes three months after the FTC plenary session ordered a re-examination in November last year. The positions of both sides differ greatly over whether it is collusion and whether the banks gained unfair profits. If it is concluded as 'collusion,' the banks will face fines amounting to hundreds of billions of won and suffer a significant blow to their credibility. Conversely, if the FTC fails to prove clear evidence, it may face criticism for causing confusion in the financial sector. This is why attention is focused on the results of the re-examination.

FTC conducts on-site investigations at Shinhan and Woori Banks... KB Kookmin and Hana Banks to follow soon

According to financial sector sources on the 13th, the FTC has dispatched personnel to the credit departments at the headquarters of Shinhan Bank and Woori Bank to conduct on-site investigations starting this week. They are expected to secure documents, contracts, and email records of responsible personnel that can prove the exchange of LTV information. KB Kookmin Bank and Hana Bank are also expected to undergo on-site investigations soon.

This investigation was conducted to supplement the examination report (equivalent to a prosecutor's indictment) by further verifying the banks' claims after the re-examination order was issued at last year's plenary session. The plenary session, composed of the FTC chairman and standing commissioners, ordered a re-examination last year citing "many issues that require careful consideration" and other reasons. At that time, An Byung-hoon, the adjudication manager, stated, "There are no procedural defects or lack of objective evidence in the existing examination," but added, "It is necessary to additionally verify new claims raised during the deliberation process."

This on-site investigation is expected to effectively mark the official start of the FTC's re-examination of the LTV collusion case.

Information exchange is a fact... The key question is whether it can be seen as collusion

The FTC's on-site investigations conducted in February and June last year revealed that the four major banks shared approximately 7,500 LTV data entries from 2020 to 2022. LTV is the ratio indicating the maximum loan amount a bank can lend against real estate collateral. Banks assign different LTVs depending on the collateral type?such as apartments, land, factories?and by 250 city, county, and district areas, and they shared this information.

The FTC believes that by using this information, the banks lowered the LTVs for each region and collateral type to similar levels, thereby restricting competition and infringing on the interests of financial consumers. They argue that by sharing confidential LTV information, the banks colluded on the terms of secured loan transactions. Since LTV determines the loan limit, which can influence consumers' choice of bank for loans, this practice allegedly blocked competition. The FTC also claims that by presenting lower LTVs, the banks reduced mortgage loan limits and induced additional loans such as unsecured credit loans, ultimately raising interest rates.

The banks deny this, arguing that it was merely a simple exchange of information, not collusion. They claim that the data is publicly available and can be accessed by consumers with minimal effort by visiting bank branches, and that the timing and trends of LTV adjustments differ among banks. They argue that the information exchange was a customary practice to enhance the objectivity of LTV calculations and that there were no unfair profits. Instead, they say it should be viewed from a risk management perspective. Regarding the FTC's claim that this induced interest rate hikes, a representative from a commercial bank expressed frustration, saying, "Each bank has different criteria for calculating additional and preferential interest rates, so simply linking LTV to interest rate collusion is an excessive interpretation," adding, "Loan competition is fierce to the point of accepting negative margins, so collusion does not fit the reality."

Both sides hold firm positions... Administrative lawsuits possible even if FTC reaches a conclusion

The key issues are whether ▲ LTV information is sensitive data ▲ there is direct evidence of collusion ▲ and whether the banks gained unfair profits through information exchange. In particular, proving that market competition was restricted by sharing LTV data is expected to be crucial. If the FTC fails to prove this, it may face strong opposition even if it concludes collusion. In 2012, the FTC also investigated for 3 years and 7 months on allegations of collusion over the negotiable certificate of deposit (CD) interest rates, which serve as a benchmark for loan interest rates, but ended with insufficient evidence, causing confusion in the financial sector.

The FTC is unlikely to back down easily as this case is the first under the Fair Trade Act to regulate 'information exchange collusion.' This could also impact other industries such as telecommunications and alcoholic beverages, where sanctions have been announced under the same regulation. The banks, calling it an 'overreach,' intend to actively defend themselves. Even if the case is concluded as collusion, there is a high possibility of administrative lawsuits. In the past, there have been cases where the FTC imposed fines for collusion on life insurance companies over variable insurance commission rates and the exchange of information on scheduled and announced interest rates, but the companies won through litigation.

A financial sector official said, "Since the banks are protesting their innocence, it may take quite a long time before a final conclusion is reached."