Next Month PF Lenders Agreement to Launch... Expansion of Guarantee and Policy Finance Supply

Corporate Bonds, Short-Term Financial Market, and Real Estate PF Risk Review Meeting

Kwon Dae-young, Standing Commissioner of the Financial Services Commission

The financial authorities will reactivate the PF (Project Financing) lenders' agreement starting in April to stabilize the real estate project financing (PF) market, which is considered the biggest risk factor for the Korean economy. Additionally, they will expand policy financial support to prevent the spread of insolvency to construction companies and real estate trust companies.

On the 6th, the Financial Services Commission announced that at the ‘Corporate Bond, Short-term Financial Market, and Real Estate PF Risk Review Meeting’ held at the Government Seoul Office in Jongno-gu, Seoul, chaired by Standing Commissioner Kwon Dae-young, discussions were held with the Ministry of Economy and Finance, Bank of Korea, Financial Supervisory Service, policy financial institutions, and financial companies.

At the meeting, participants assessed that while the PF market is not yet likely to develop into a systemic risk, there are localized risks and difficulties by industry and region. They agreed that since PF insolvency has significant ripple effects across economic and financial sectors, it is necessary to prepare preemptive response measures.

Accordingly, the authorities will conduct an integrated review of loan status and project progress at the level of all real estate PF sites, and establish a rapid reporting system for abnormal signs to enable timely and swift responses.

Policy responses tailored to the situation and characteristics of each project site will continue. The authorities plan to promptly provide project guarantees from the Korea Housing Finance Corporation (HF) and the Korea Housing & Urban Guarantee Corporation (HUG) to ensure that normal projects proceed without disruption. As part of this, HF plans to launch a ‘PF-ABCP Long-term Loan Conversion Guarantee’ product worth 1.5 trillion won within this month to support the resolution of refinancing risks at project sites.

Furthermore, the authorities will reactivate the PF lenders' agreement in April to help projects with concerns about feasibility return to a normal track, and in the first half of the year, support private sector-led autonomous project restructuring through the Korea Asset Management Corporation (KAMCO) and others.

The PF lenders' agreement, which will be activated next month, is expected to be revised to expand the scope of signatories to include mutual finance institutions and Saemaeul Geumgo, and to differentiate decision-making criteria by content for faster decision-making within the lenders' group.

The authorities also plan to increase the scale of policy financial supply to 28.4 trillion won, up 5 trillion won from the balance at the end of last year, to prevent PF risks from spreading to construction companies and real estate trust companies.

Meanwhile, participants at the meeting evaluated that the corporate bond and short-term money markets have clearly improved, moving away from the recent tightening phase. However, they noted that for PF-ABCP, interest rates below A2 grade remain high and the shortening of funding maturity is intensifying, so close monitoring of market conditions is necessary.

They also pointed out that due to strong U.S. economic indicators and inflation data exceeding expectations, monetary tightening is expected to be prolonged, and with ongoing uncertainties such as the Russia-Ukraine war and U.S.-China tensions, policy support will continue using market stabilization programs to maintain stability in the corporate bond and short-term money markets.

The Financial Services Commission stated, “To stabilize the real estate PF market, we will flexibly implement existing programs and promptly review and decide on the extension of financial regulatory relief measures considering market conditions. We will regularly hold expert meetings in the PF sector and establish mechanisms to prevent moral hazard alongside the self-help efforts of various participants.”