Banks Ignore FSC Pledge and Persist With "Self-Appraisals"... Bill Proposes Fines of Up to 30 Million Won [Real Estate AtoZ]

A bill that would establish grounds for imposing penalties on banks for continuing so-called "self-appraisals" despite the Ministry of Land, Infrastructure and Transport having determined them to be illegal has been submitted to the National Assembly.

According to the appraisal industry on the 24th, Assemblyman Moon Jinseok of the Democratic Party of Korea, a member of the National Assembly’s Land, Infrastructure and Transport Committee, on this day sponsored a bill to partially amend the Act on Appraisal and Appraisers that would impose a fine of up to 30 million won on any person who conducts an appraisal directly without commissioning an appraisal corporation.

The amendment bill explicitly designates as punishable any person who conducts an appraisal directly in violation of the “obligation to commission an appraisal corporation, etc.” set out in Article 5, Paragraph 2 of the current Act.

Appraisers held the "6th Rally Condemning KB Kookmin Bank's Illegal Encroachment into the Appraisal Market" on November 16 last year in front of KB Kookmin Bank's new building in Yeouido, Seoul, and demanded that the bank stop conducting in-house appraisals. Korea Association of Real Estate Appraisers

Since the enactment of the relevant law in 1973, financial institutions’ in-house appraisals have, in principle, been prohibited for 53 years. The current Act also stipulates that appraisals for lending or asset management work must be commissioned to external experts.

However, banks have continued to carry out in-house appraisals on the grounds that the lower-level administrative rule, the “Detailed Regulations on the Supervision of Banking Business,” allows them to independently determine the value of non-residential real estate and similar assets. As a result, a situation in which the higher-level law and the lower-level guidelines are in conflict has been left unresolved for more than half a century.

Recently, the volume of in-house appraisals at some commercial banks has been surging. In the case of KB Kookmin Bank, the share of in-house appraisal amounts rose from 19.89% in 2021 to 44.60% in the first half of last year, while the total appraised amount expanded from 26 trillion won in 2022 to an estimated 75 trillion won in 2024. These in-house appraisals are understood to be concentrated mainly on high-value properties averaging in the 12 billion won range.

Bill to Partially Amend the Act on Appraisal and Appraisers. Office of Representative Moon Jinseok

The Ministry of Land, Infrastructure and Transport made it official through an authoritative interpretation in September last year that banks’ in-house appraisals constitute a violation of the law. The Financial Services Commission also pledged during last year’s National Assembly audit, in response to Assemblyman Moon Jinseok’s questioning, to resolve the issue within the year.

Subsequently, discussions between the banking sector and the Korea Association of Property Appraisers proceeded under the mediation of the Financial Services Commission, but as the focus shifted from rectifying the violation of the current Act to merely adjusting the volume of in-house appraisals, the year ended without any agreement.

Assemblyman Moon pointed out, “Even though the violation of the law has been raised in the National Assembly for years, the practice has not been corrected because the absence of penalty provisions has been exploited,” adding that the authorities also failed to keep their promises. He went on to say, “To eliminate the potential for violations of the current Act, there is no other choice but to enforce corrective action through legislation.”