5.9
Privatization of Korea Housing Bank and Reformation of Public Housing Finance Delivery System
공공주택금융 관리체계 개선방안(RR97-7) Ju-Hyun Yoon and Hye-Seung Kim
1997. 12․196 pages․Korean
Housing finance in Korea experienced a rapid change in financial environment such as privatization of Korea Housing Bank (KHB) and the Financial Reform, carried out by both inner and outer demand.
KHB, the leading bank owned by the government specializing in housing finance, was transferred to the private commercial bank this year, and renamed as Korea Commercial and Housing Bank.
Privatization of KHB brings about far reaching changes in housing finance system in Korea. KHB holds 90% of total outstanding housing loan including loans from National Housing Fund (NHF). The NHF, the representative public housing finance, has been entrusted its acting management to KHB by the law, since KHB was a government-invested bank specializing in housing finance. KHB is also in charge of managing the Housing Finance Credit Guarantee Fund (HFCGF).
KHB had a dual role both as a private and public institution. The government regulated housing loans with policy-based preferential interest rate, even though it is classified as a government-invested private housing finance institution. It also served even in the non-profitable field such as the management of special loans account for chonsei--unique tenure type in Korea, where the tenant gives the landlord a lumpsum deposit instead of monthly rent and the landlord refunds the principal at the end of the contract--for the low income group.
KHB has enjoyed monopoly in the resource collection through the contractual savings scheme regulated by the government and also maintained the monopolistic power in the origination of the housing loan.
Upon privatization, KHB no longer has the legitimate basis to handle the public fund, to perform the non-profit service provision, and to enjoy the
monopolistic power. Thus, the purpose of the present study is to identify the problems in privatizing KHB and to provide a rationale as well as alternatives to secure the efficient and competitive public housing finance.
Besides the privatization of KHB, housing finance in Korea is also confronted with nationwide Financial Reform. The Committee for Financial Reform was established early this year as a supportive organization for the Green House.
The committee submitted 3 volumes of reports on classified issues. It includes the idea of promoting the competition among banks by removing the restrictions on service boundary, deregulating for the sake of user convenience, and introducing the advanced financial techniques and system.
All of these measures will enhance the resource mobilization of housing finance, ease the user accessibility, and raise the quality of the financial service.
On the basis of the reviews on the other countries, experiences in financial reform, we conclude that the housing finance in Korea will grow continuously.
Once the financial reform is completed, the fund supply for housing finance will increase since large commercial banks will come to participate in the housing finance sector. Banks will turn their interest into retail banking, since the large-scale companies tend to get direct financing from the capital market. In addition, many countries maintain the housing policy to increase housing welfare for the people. Thus, in preparing the new delivery system for public housing finance, we need to provide the desirable future direction in housing finance development.
Housing finance system in Korea which has been exclusively led by the government has to be shifted to the one led by the private sector. The public sector must focus on providing housing for the low income and raising effectiveness with limited funds. The role of the public housing finance is classified into three categories; the first is to supplement the private sector quantitatively, the second is to supplement the private sector qualitatively, and the third is to safeguard the private sector by controlling the risks as private sector develops. According to this classification, the role of the public housing finance in Korea can be described as concentrating on the first role while showing the considerable absence of the second and third role. According to the development of housing finance in private sector, the role of the public sector
has to shift toward the second and third roles.
The study considered 4 alternatives to reform the public housing finance delivery system in privatizing of KHB. The first alternative is to maintain the present management system in KHB, while allowing other banks to handle the service for the public. The second one is to allow Korea National Housing Corporation to manage the NHF with other banks participating in the service for the public. The third one is to establish the new institutions sponsored by the government managing the NHF and the HFCGF separately. The fourth one is to establish the new institution invested by the government managing the NHF together with the HFCGF. We compared the pros and cons of these 4 alternatives in terms of the rationale, cost minimization, effectiveness, etc. We were not able to come up with the best alternative, instead, concluded that these alternatives can be utilized selectively case by case. It was concluded that the first alternative is the best temporarily, while the second one is not commendable. The third one is best for separately managing fund, and the last one is the best from the long-term perspective.
