Kwon Hyangyeop: KNOC Issues 35.7 Billion Won in Loans in Violation of Government Guidelines

Despite Complete Capital Erosion, Low-Interest and Over-Limit Loans Continue
"600 Billion Won in Annual Interest... Imperial Loans Ignore Lax Management Warnings"

Korea National Oil Corporation (hereafter referred to as KNOC), which is in a state of complete capital erosion and pays annual interest expenses of up to 600 billion won, has been found to have provided a total of 35.7 billion won in support through low-interest and over-limit loans in violation of government guidelines.

According to data submitted by Hyangyeop Kwon, a member of the Democratic Party of Korea (representing Suncheon, Gwangyang, Gokseong, and Gurye in South Jeolla Province), which was received from KNOC on October 10, the corporation has issued approximately 25.6 billion won in living stabilization loans and about 10.1 billion won in housing loans in excess of government guideline limits from August 2021 to the present.

Kwon Hyangyeop, member of the Democratic Party of Korea.

During the same period, the total amount lent was about 33.1 billion won for living stabilization loans and about 21.8 billion won for housing loans. Of these, the proportion of over-limit loans was 77.4% for living stabilization loans and 46.2% for housing loans.

The Ministry of Economy and Finance (hereafter referred to as MOEF) revised the “Guidelines for Innovation in Public Institutions” (hereafter referred to as the Innovation Guidelines) in July 2021, stipulating that the minimum interest rate for loans should be set at the “Bank Household Loan Rate” announced by the Bank of Korea, and that the maximum loan limits should be set at 70 million won for housing loans and 20 million won for living stabilization loans.

However, KNOC continued to provide loans in violation of government guidelines without revising its own regulations, namely the Living Stabilization Fund Operation Regulations and the Housing Loan Regulations, to comply with the Innovation Guidelines.

As of October 9, the Bank of Korea’s announced bank household loan rate stands at 4.17%, but KNOC’s internal regulations set the interest rate for living stabilization loans at only 2.5% and for housing loans at 2.49%, which are 1.67% and 1.68% lower, respectively. Criticism has arisen that these are “imperial loans,” offering interest rates more than 1.6% lower than those available to the general public in the market.

The loan limits are also set at more than twice the standard in the Innovation Guidelines. While the Innovation Guidelines stipulate a maximum of 70 million won for housing loans and 20 million won for living stabilization loans, KNOC’s limits are 150 million won for housing loans and 50 million won for living stabilization loans.

In response, MOEF pointed out through three consecutive years (2022-2024) of “external welfare benefit inspections” that KNOC violated government guidelines in all aspects related to in-house loans. Previously, the Board of Audit and Inspection also pointed out excessively low-interest loans compared to market rates in its 2016 audit of “implementation status of public institution management improvement,” and notified KNOC to prepare measures to revise the housing loan regulations. However, KNOC has not taken any corrective action to date.

Meanwhile, KNOC, which has been in a state of complete capital erosion for six years, spent 566 billion won on debt interest last year and 331.1 billion won in the first half of this year alone. In its mid- to long-term financial management plan, KNOC predicted that interest expenses would exceed 600 billion won this year.

Kwon stated, “Providing ‘imperial loans’ with low interest rates and over-limit amounts in clear violation of government guidelines, while spending 600 billion won annually on interest in a state of complete capital erosion, is a blatant example of lax management. Despite repeated government warnings, there has been no improvement in lax management, and the debt continues to pile up like a mountain. Yet, KNOC’s plan is to spend 120 billion won every year to drill forever.”