Automated teller machines of the country's four largest commercial banks — KB Kookmin, Shinhan, Hana and Woori — are seen at a building in Seoul, Jan. 8. Yonhap

The four largest commercial banks in Korea — KB Kookmin, Shinhan, Hana and Woori — are jointly countering the Fair Trade Commission (FTC) to clear allegations that they colluded to set the most competitive loan-to-value (LTV) ratio and exploit customers.

The ratio is used as one of the criteria to determine the amount of mortgage or secured housing loans, relying on the assessed value of a borrower's home, which serves as collateral.

But the ratio is not the sole factor influencing the decisions of banks on the amount of money that homebuyers can take out as well as their repayment rates.

The four lenders, however, are wary of the allegations raised by the fair trade watchdog last week, given the criticism they have faced from both the government and the public for accruing "windfall profits" during a period of elevated key interest rates.

The lenders hired a prominent law firm anticipating their summons by the Fair Trade Commission (FTC) in mid-February for the initial court session, as reported by banking and legal sources.

The name and other details of the law firm were not disclosed.

After months of investigation, the FTC concluded on Jan. 8 that the banks colluded in deciding the LTV ratio. The commission requested prosecutors to press charges against the lenders.

The banks could be subject to fines of billions of won if found guilty, which can worsen public sentiment against them, the sources said.

"The four banks are undoubtedly eager to refute the allegations, given the unfavorable and somewhat hostile social atmosphere they currently find themselves in," a source said.

The source pointed out the FTC's investigation into the banks was carried out under order of President Yoon Suk Yeol.

The president repeatedly spoke out against major commercial banks for setting borrowing rates too high for households and small business owners in the midst of a slowdown in economic growth, high inflation and other difficulties.

The four banks admitted they opened and shared customer data and information, estimated at around 7,000 in their numbers combined.

Nevertheless, they argued the information was merely used as a reference and that they did not collude to determine the LTV ratio on their path to set profitable mortgage interest rates.

In particular, they pointed out that the ceiling for the LTV ratio is set at 70 percent by the government, meaning the banks can not issue mortgage loans exceeding 70 percent of the value of a home belonging to a borrower.

“Under the regulation, we can only lower the LTV ratio to restrict the amount of money that customers can borrow, and as a result, raise less interest income,” a public relations staffer of a targeted bank said. “We can't understand how the FTC judged we can be in collusion concerning the LTV ratio to reap illicit gains.”

He noted the FTC did not allege that the lenders colluded on the housing loan rates.