Strong Warning from the Financial Supervisory Service: Tackling Mortgage Rate Hikes and Unfair Loans in the Banking Sector

Recently, Lee Bok-hyun, the Governor of the Financial Supervisory Service (FSS), issued a strong warning to the banking sector regarding the increase in mortgage rates.(The person in the photo is not related to the article.)

Recently, Lee Bok-hyun, the Governor of the Financial Supervisory Service (FSS), issued a strong warning to the banking sector regarding the increase in mortgage rates. He also announced plans to sanction the top management of Woori Financial Group for their failure to address issues related to unfair loans granted to relatives of former chairman Son Tae-seung. In this blog post, we will examine the implications of Lee’s remarks and the potential impact on the banking industry.

In recent weeks, major banks have been raising mortgage rates as a way to manage household debt. However, Lee Bok-hyun, the Governor of the FSS, has made it clear that this approach does not align with the financial authorities' expectations. While the FSS has traditionally minimized its interference in the banking sector to respect its autonomy, Lee signaled a shift in strategy, suggesting that the authorities may take a more aggressive stance in response to the current real estate market conditions. This is a clear indication that the FSS will not tolerate banks using interest rate hikes as a tool for debt management.

The five major commercial banks in South Korea have raised mortgage rates 22 times in the past month alone, despite a downward trend in market interest rates. This move was intended to curb the growth of household loans. However, following Lee’s stern warning, it is likely that these rate increases will face significant scrutiny and could be halted.

Additionally, Lee criticized the current leadership of Woori Financial Group over their handling of the unfair loans scandal involving relatives of former chairman Son Tae-seung. He pointed out that the current executives were aware of the issue but failed to take appropriate action, and he vowed to use all legal means at his disposal to impose sanctions. This criticism appears to be directed at Im Jong-ryong, Chairman of Woori Financial Group, and Cho Byung-kyu, President of Woori Bank, signaling the FSS’s intent to hold them accountable for their role in the scandal. Some in the financial industry interpret Lee’s comments as an indirect call for their resignation.

Lee also expressed his concerns about the recurrence of past malpractices under the new management, stating, "Although the incident occurred during the former chairman’s tenure, it is troubling to see similar issues resurfacing more than a year into the new leadership." He emphasized the need for a thorough investigation, driven by the assumption that nothing should be hidden, rather than taking the institution’s trustworthiness for granted. This underscores the FSS’s commitment to enforcing strict oversight and accountability within the banking sector.

Lee Bok-hyun’s strong warning is expected to have a significant impact on the banking industry. The increase in mortgage rates and the issues surrounding unfair loans are serious concerns that could undermine public trust in the financial sector. Moving forward, it is essential for both the financial authorities and the banks to collaborate closely to address these issues and foster a more transparent and fair financial environment. Responsible management and the maintenance of customer trust are more crucial now than ever.