PF Lenders Supporting 152 Project Sites... "Slowing Rise in Delinquency Rate"

Financial Services Commission Holds 'Real Estate PF Situation Review Meeting'

A real estate project financing (PF) consortium composed of the entire financial sector has been providing financial support to normalize operations at 152 project sites nationwide. The authorities plan to introduce additional measures to enhance the effectiveness of the 'PF Project Site Normalization Support Fund,' which will be fully operational this month.

On the 12th, the Financial Services Commission (FSC) announced that it held a 'Real Estate PF Project Normalization Progress Review Meeting' at the Government Complex Seoul in Jongno-gu, Seoul, chaired by Vice Chairman Kim So-young. The meeting was attended by the Ministry of Economy and Finance, Ministry of Land, Infrastructure and Transport, Financial Supervisory Service, Bank of Korea, policy financial institutions, major financial holding companies, the Korea Federation of Banks, the Korea Federation of Savings Banks, and the Korea Credit Finance Association.

According to the FSC, as of the end of August, there were 187 projects subject to the PF consortium agreement. Among these, financial support such as reinstatement of interest benefits, new funding, interest deferral, and maturity extension was provided to 152 projects. Twenty-three projects were rejected due to lack of viability or insufficient joint loss-sharing between the developer, contractor, and consortium, while the remaining 12 projects are under review.

By project progress stage, of the 187 projects under the consortium agreement, 144 were bridge loans, accounting for 77.0% of all agreements. This indicates that the consortium agreement is actively utilized in bridge loans, which require greater coordination among stakeholders compared to the main PF.

Regionally, among the 187 projects under the consortium agreement, 84 were located in the metropolitan area (24 in Seoul, 44 in Gyeonggi, and 16 in Incheon), while 103 were in other regions. By usage, residential facilities (114 projects) were the most common, followed by commercial facilities (25), industrial facilities (22), office facilities (16), others (9), and lodging facilities (1).

Meanwhile, the authorities plan to announce measures by the end of this month to amplify the effect of the PF normalization support fund. The Korea Asset Management Corporation (KAMCO) has established the PF normalization support fund with about 1 trillion KRW, a policy fund that acquires distressed PF bonds to support project normalization, scheduled to be operational this month.

Vice Chairman Kim said, "Enhancing project viability through restructuring of real estate PF projects and the injection of new money based on this is key to normalizing the current real estate PF market and ensuring smooth housing supply. We will closely consult with related ministries, agencies, and the financial sector to include additional measures to increase the effectiveness of the PF normalization support fund in the government's joint housing supply expansion plan to be announced at the end of this month."

The meeting also involved sharing the current status of the real estate PF market. Participants noted that the delinquency rate on real estate PF loans in the financial sector was 2.17% as of the end of Q2, up 0.16 percentage points from 2.01% at the end of Q1, but the increase has significantly slowed compared to 1.19% at the end of last year. By sector, securities firms' delinquency rate rose by 1.4 percentage points to 17.28%. Other sectors recorded rates of 4.61% for savings banks, 3.89% for specialized credit finance companies, 1.12% for mutual finance, 0.73% for insurance, and 0.23% for banks. Except for credit finance companies, all sectors showed an upward trend in delinquency rates.

While participants agreed that real estate PF issues would not spread as risks across the entire financial sector, they emphasized that "due to the ongoing high-interest rate environment, rising construction costs, and safety expenses, risks in the real estate PF market remain, necessitating continuous monitoring and management."

Vice Chairman Kim stated, "The government will continuously take necessary measures in cooperation with related agencies and the financial industry to regularly monitor risks related to real estate PF projects and ensure that funds needed for project normalization are supplied timely and appropriately. To maximize the effectiveness of the previously announced PF consortium agreements and the PF project normalization support fund, active commitment and efforts from private participants such as the consortium, developers, and contractors are essential."

He added, "Developers and the consortium need to make active efforts to improve project viability through debt restructuring based on a rigorous business feasibility assessment rather than simple maturity extensions. Financial institutions forming the consortium should provide sufficient funds to viable PF projects to facilitate smooth project progress while ensuring thorough provisioning for loan losses from a risk management perspective."