[2020 National Audit] Savings Banks' Real Estate PF Loans Surge Again

Yoo Dong-su, Democratic Party of Korea lawmaker

[Asia Economy Reporter Kim Min-young] Real estate project financing (PF) loans, which were the root cause of the 2011 savings bank insolvency crisis, have surged again.

According to data submitted by the Korea Deposit Insurance Corporation to Yoo Dong-su, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, savings banks' real estate PF loans reached 6.5 trillion won in the first half of this year, an increase of 200 billion won compared to last year. Compared to immediately after the savings bank crisis (4.3 trillion won), it is an increase of 2.2 trillion won.

Real estate PF loans are long-term loans secured by real estate projects. While they are not problematic during a booming real estate market, the risk of insolvency increases when the market stagnates.

At the Political Affairs Committee's national audit, Assemblyman Yoo pointed out, “The government is introducing various real estate measures to stabilize housing prices, raising concerns that the real estate market may stagnate in the future. There are voices of concern that real estate PF loans, closely linked to the real estate economy, could become massively insolvent, so the soundness of the trend in real estate PF loans must be closely monitored.”

Assemblyman Yoo also urged the prompt sale of unsold bankrupt savings bank PF assets held by the KDIC since the 2011 savings bank crisis. Since 2011, there have been a total of 758 bankrupt savings bank PF sites. Of these, 737 sites (87.8%) were sold by the end of August this year, recovering about 5.3182 trillion won, but 120 sites (424.6 billion won) among the KDIC’s bankrupt savings bank real estate PF sites have yet to be sold.

Assemblyman Yoo said, “The KDIC is managing and recovering assets of the bankruptcy estate to quickly recover funds invested in cleaning up insolvent savings banks since 2011. Although 10 years have passed since the savings bank crisis, the KDIC’s recovery performance of bankrupt savings bank assets is showing a downward trend, raising suspicions that efforts to sell these assets may be somewhat insufficient.”