"7,500 LTV Entries Manually Input": Big 4 Banks Fined 270 Billion Won for Loan Collusion

First Case of "Information Exchange Collusion" Applied
Unfair Gains Through Collusion on Transaction Terms
Funding Difficulties for Small and Medium Enterprises and Small Business Owners

On January 21, the Fair Trade Commission imposed a fine of approximately 272 billion won on the four major commercial banks for colluding on the loan-to-value (LTV) ratio, a key term in real estate-backed loans. The Fair Trade Commission determined that by conspiring to lower LTV information, which is a competitive factor among banks, the banks avoided competition and shifted their risks onto borrowers.

According to the Fair Trade Commission's investigation, KB Kookmin Bank, Woori Bank, Shinhan Bank, and Hana Bank agreed to exchange information necessary for loans, such as LTV, from March 2022 until recently. They executed this agreement and used the information in their own LTV decisions.

Loan officers from each bank visited other banks in person to exchange LTV information in hard copy format. Each bank manually entered up to 7,500 pieces of information into Excel files, and then destroyed the hard copy documents they had received. Furthermore, to ensure uninterrupted information exchange even when personnel changed, each bank organized a list of information exchange officers and methods, and passed this information on during handovers between outgoing and incoming staff, thereby maintaining the collusive information exchange over an extended period.

LTV information is considered competitively sensitive because it affects loan terms such as loan volume and interest rates. Borrowers prefer higher LTV ratios, as they allow for larger loan amounts, making LTV a competitive factor among banks. Internal reports from the banks clearly show this, stating that "if we lower the LTV ahead of competitors, we lose competitiveness in mortgage lending."

In contrast, banks prefer lower LTV ratios. When the LTV is low, even if housing prices fall due to a real estate downturn, the risk of loss or default for the banks is reduced. In effect, this allows banks to offload their risk onto borrowers. The Fair Trade Commission pointed out, "If a bank's LTV is higher than its competitors, it bears more risk in loan recovery, so it lowers the LTV. Conversely, if its LTV is lower than others, it raises it out of concern for losing customers and weakening business competitiveness."

The Fair Trade Commission believes that this collusion likely harmed small and medium-sized enterprises and small business owners, whose credit ratings are relatively weaker than large corporations, by making it more difficult for them to secure funding through credit loans or by requiring additional collateral.

The Excel files created by the banks listed LTV information by type of real estate and land. These tables included conditional strategies indicating how each competitor bank would respond with specific LTV percentages for any property used as collateral in Korea. For example, it could be seen that a competitor bank planned to apply a 60% LTV to a general commercial property in Gwangjin-gu, Seoul, and a 40% LTV to a factory in Gwanak-gu, starting January 30, 2023.

A Fair Trade Commission official explained, "By checking this table alone, one could obtain very useful information about the detailed LTV application strategies of competing banks for all real estate in Korea."

The Fair Trade Commission stated, "If a bank's LTV differed by more than 5 percentage points from the average of other banks, it made adjustments, and in regions where its LTV was more than 5 percentage points lower than the average, it excluded those areas from the LTV reduction targets."

The Fair Trade Commission concluded that by exchanging such crucial LTV information, the banks avoided competition, causing financial consumers to suffer from limited choices in selecting their banks. However, the commission noted that it is difficult to quantify the exact amount of damages caused by this collusion.

The Fair Trade Commission determined that this case constitutes a violation of Article 40, Paragraph 1, Subparagraph 9 of the Monopoly Regulation and Fair Trade Act, and decided to impose corrective orders and a total fine of 272,014,000,000 won on the four major banks. By bank, Kookmin Bank was fined 69.7 billion won, Woori Bank 51.5 billion won, Shinhan Bank 63.8 billion won, and Hana Bank 86.9 billion won. The relevant sales amount used as the basis for the fines was estimated at approximately 6.8 trillion won for all four banks combined.

Under the revised Monopoly Regulation and Fair Trade Act at the end of 2021, the Fair Trade Commission now regards agreements among competitors to exchange information such as prices, thereby restricting market competition, as information exchange collusion and imposes sanctions. This is the first case to which the information exchange collusion rule has been applied.

The Fair Trade Commission explained, "Although employees of these banks admitted that LTV information exchange had taken place previously, only the information exchange that occurred from around March 2022, after the amended law prohibiting information exchange collusion came into effect, was subject to sanctions."

The commission added, "We have sanctioned a long-standing anti-competitive practice in the financial market, and going forward, we will strengthen monitoring of acts that restrict competition through information exchange in finance and all other sectors. If any violations are identified, we will take strict action."