Financial regulators will conduct a comprehensive investigation into farmland-collateralized loans across all financial sectors. The Ministry of Agriculture, Food and Rural Affairs plans to launch a full inspection of farmland nationwide as early as this month to identify cases of speculative use.
While the ministry has annually surveyed land use on selected farmland, this marks the first time it will examine all agricultural land for legal violations.
According to financial industry sources, regulators plan to review farmland loan conditions by sector from this month through May. The Financial Supervisory Service had initially planned to examine mortgage loans issued to sole proprietors but decided to add farmland-collateralized loans to the review.
Authorities will investigate whether individuals are using farmland loans to circumvent household lending regulations such as debt service ratio (DSR) and loan-to-value (LTV) requirements. Industry observers note that just as sole proprietor loans have been identified as a bypass for mortgage restrictions, similar practices likely exist in farmland lending.
The review will also examine whether collateral valuations for farmland loans are being properly conducted. A financial regulatory official explained, "When issuing farmland loans, lenders require farmer certification documents, but the key question is whether borrowers are actually farming. We decided to examine farmland loans alongside business loans."
The agriculture ministry will focus its investigation on whether landowners in the Seoul metropolitan area are actually engaged in farming operations. The capital region sees frequent cases of individuals holding farmland for capital gains through various regulatory workarounds without actually cultivating crops, due to high development demand. The Farmland Act strictly restricts acquisition and ownership of agricultural land by non-farmers, in accordance with the constitutional principle that farmland belongs to those who till it.
President Lee Jae-myung previously issued strong criticism, stating, "Farmland management in our country is in complete disarray. Hasn't farmland become a target for speculation?"
The ministry's comprehensive farmland survey is a follow-up measure to this concern. A government official noted, "Pressure on real estate is intensifying."
The regulatory probe into sole proprietor farmland loans appears driven by concerns that such loans may serve as tools to evade household lending restrictions.
In practice, numerous lending companies and loan brokers advertise that sole proprietor farmland loans can bypass DSR regulations or offer LTV ratios up to 80%.
Nationwide agricultural cooperatives apply a 50% DSR cap when farmland-collateralized loans are used for household purposes, including home purchases. However, this restriction does not apply to business-purpose loans. A common workaround exists where applicants who fail to qualify for household mortgages reapply as sole proprietors to secure larger loans. Regulators intend to determine whether similar practices occur with farmland loans.
Consequently, authorities will first verify whether sole proprietors who obtained farmland-backed loans are actually engaged in farming. The aim is to examine how farmland loan proceeds are actually being used.
A regulatory official stated, "Generally, farmland loan applicants must submit farmer qualification certificates, so nearly 100% of loans go to registered farmers." The official added, "However, whether these farmers are actually cultivating their land has not been properly monitored."
Proper valuation of farmland collateral is another key concern. Many regional agricultural cooperatives and lending companies calculate farmland loan limits through their own internal appraisals.
Regulators are also monitoring farmland loan delinquencies. According to a December analysis by the Bank of Korea's Jeju branch, the non-performing loan ratio at agricultural and livestock cooperatives in Jeju surged from 0.49% at the end of 2020 to 2.97% by the end of June last year.
Industry observers expect nationwide agricultural cooperatives to be primary targets of the inspection. These cooperatives held farmland-collateralized loan balances of 71.03 trillion won at the end of last year—the largest among domestic financial institutions.
Among major commercial banks, NH NongHyup Bank handles farmland loans, but regulators are reportedly focusing more on secondary financial institutions. NH NongHyup Bank's farmland loan balance stood at 11.88 trillion won at the end of last year.