[EDITORIALS]An unsound ‘suggestion’

A growing number of Korean banks have stopped making new housing loans. The Financial Supervisory Service urged the banks, “the volume of housing loans is hitting record highs and the banks need more rigid risk management in case local real estate prices decline.” The Financial Supervisory Service said it just made a “suggestion,” but no local bank would dare to refuse such a request. The banks whose housing loan amounts have already exceeded the regulators’ recommended level are now completely halting new housing loans.
The move is the government’s latest measure to curb rampant housing price hikes. It is true that ever-growing competition among local financial companies to sell more housing loans fanned real estate speculation. One can say it is problematic that local banks’ housing loan amounts increased 3 trillion won ($3 billion) a month even after the government announced its comprehensive real estate policy package on March 30.
But the government regulators’ latest measure has too many flaws just to overlook.
Now people hoping to buy new homes have no choice but to turn to loan sharks or other small financial companies with exorbitant interest rates. The latest measure, initially designed to curb rising housing prices in the affluent Gangnam area, is actually squeezing ordinary homebuyers.
As the Financial Supervisory Service said, it will be too late when local banks feel they are in danger. But no matter how urgent this problem is, the government should not just clog the flow of money in the loan market. The regulator first needs to tighten its supervision on whether local banks are following the loan-to-value rates, as many banks have been suspected of lending more than the government-set lending limits.
It is also very important to establish clear standards to distinguish real estate speculators and actual homebuyers. Limiting the amount of housing loans throughout the nation should be the very last resort after all other means are exhausted. We “recommend” the Financial Supervisory Service think again about the right way to correct the market.