Held Legislative Seminar and Expert Discussion
Hong Seong-guk: "Safety Net to Prevent Market Panic"
The Democratic Party of Korea is pushing legislation to establish a 'bad bank' that allows the government to stably acquire and manage non-performing assets and bonds, and support debt restructuring. This is a preemptive response as the real estate project financing (PF) market, centered on construction companies, faces a crisis of insolvency amid the recent high-interest rate environment.
Hong Seong-guk, a member of the Democratic Party and the secretary of the Economic Crisis Response Center, plans to propose the "Amendment to the Act on the Establishment of Korea Asset Management Corporation" containing these measures within this week.
To this end, the Economic Crisis Response Center held a seminar at the National Assembly this afternoon to gather opinions.
The amendment aims to establish a permanent fund called the "Safety Leap Fund (tentative name)" within the Korea Asset Management Corporation (KAMCO) to facilitate the smooth restructuring of marginal companies and enable the government-led bad bank role. Support for the bad bank is one of the "9 Major Livelihood Recovery Projects" proposed by Lee Jae-myung, the Democratic Party leader, earlier this year.
At the seminar, Representative Hong explained, "Currently, many problems are occurring in the Korean economy, especially in real estate," adding, "If the real estate PF issues can be sufficiently resolved, those who have purchased pre-sale units will feel reassured, which will slow the decline and act as a safety net to prevent a kind of market panic."
Experts from various fields attending the seminar agreed with the purpose of the legislation. Kang Jeong-gyu, dean of the Graduate School of Real Estate at Dong-Eui University, said about the current status of real estate PF, "Due to decreased demand across all real estate sectors, liquidity concerns for construction companies have arisen, leading to non-performing real estate PF loans and putting construction companies in crisis," adding, "The establishment of a bad bank for preemptive response is timely."
However, Dean Kang added that detailed legislative amendments are necessary to form social consensus and dispel concerns about moral hazard.
Kim Jeong-joo of the Korea Research Institute for Construction Industry also stated, "The possibility of insolvency in recent real estate PF projects is increasing," and explained, "It is necessary to prevent financial market instability factors in advance through the prompt resolution of non-performing loans."
At the same time, he suggested the need for supplementation, saying, "For now, it would be appropriate to establish a legal basis for the fund within the basic law," and "Consideration is needed regarding the necessity of operating a 'permanent' fund."
Meanwhile, Han Deok-gyu, head of corporate support at Korea Asset Management Corporation, said, "Although it is still difficult to view this as a systemic risk compared to past crises, if high inflation and the slowdown in the real estate market persist for a considerable period, the difficulties in real estate PF may expand," adding, "KAMCO is also planning to establish a 1 trillion won scale real estate PF normalization support fund according to government plans."
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