South Korea’s Antitrust Watchdog Expands Probe Into Bank Collusion Allegations

South Korea’s antitrust regulator, the Korea Fair Trade Commission (KFTC), has intensified its reinvestigation into allegations that four major banks engaged in collusion by exchanging lending limit information. According to Korean Herald, the watchdog conducted fresh inspections at the headquarters of KB Kookmin Bank and Hana Bank on Monday, following similar probes at Woori Bank and Shinhan Bank the previous week.

The allegations center on claims that the four commercial lenders shared approximately 7,500 loan-to-value (LTV) ratio data between 2020 and 2022. The KFTC suspects that the banks deliberately lowered their lending risk assessment ratios to similar levels, potentially limiting competition and securing illicit financial gains.

The LTV ratio is a crucial measure used by lenders to assess the risk associated with a loan. It is calculated by dividing the loan amount by the market value of the collateral asset. Per Korean Herald, the KFTC believes that by collectively keeping LTV ratios low, the banks may have forced certain borrowers to turn to credit loans with higher interest rates, thereby increasing their financial burden.

Despite the allegations, the banks have denied any wrongdoing, arguing that the changes in their LTV ratios were made independently and at different times. However, the KFTC’s primary focus is on whether there was an agreement to collude, rather than the exact implementation of such an agreement.

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“The figures (LTV ratios) may not be perfectly matched, but an agreement (between banks) can be seen as illegal. It is difficult to say that they have no problem just because they took different actions or some did not fully implement what they agreed on,” an official from the KFTC’s Cartel Investigation Bureau stated, as reported by Korean Herald.

If the banks are found guilty of collusion, they could face fines amounting to hundreds of billions of won. Under South Korean law, penalties for anti-competitive activities can reach up to 20% of revenue generated from the affected business. The combined interest income of the four banks in 2022 alone exceeded 40 trillion won ($27.76 billion), indicating that potential fines could be substantial.

Market analysts remain divided on the issue. Some argue that the KFTC’s accusations are excessive, noting that a lower LTV ratio does not necessarily lead to increased borrowing rates. However, the KFTC maintains that any influence on lending rates warrants thorough scrutiny.

The case, which initially opened in February 2023, was expected to conclude in November 2024. However, a recent plenary session at the KFTC determined that additional confirmation was needed from both investigators and the banks, leading to the reinvestigation.

“The KFTC will swiftly complete the reinvestigation and put the case before the committee. After that, the banks will go through the process of vindication, and the final decision will be made at the plenary session of the KFTC,” the agency said in an official statement.

Source: Korea Herald