Top 5 Financial Groups Lose 1 Trillion Won in Overseas Real Estate Investments

It has been reported that the top five domestic financial groups have recorded valuation losses exceeding 1 trillion KRW from overseas real estate investments.

According to the office of Yang Kyung-sook, a member of the Democratic Party of Korea, as of the 18th, the top five financial groups (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) have made a total of 782 overseas real estate investments. These are investments executed independently by the financial groups, separate from overseas real estate funds sold to customers, with a total principal amounting to 20.3868 trillion KRW.

Among them, Hana Financial Group had the largest investment principal at 6.2458 trillion KRW, followed by KB Financial Group with 5.6533 trillion KRW, Shinhan Financial Group with 3.999 trillion KRW, Nonghyup Financial Group with 2.3496 trillion KRW, and Woori Financial Group with 2.1391 trillion KRW.

Excluding loan receivables, the five financial groups invested a total principal of 10.4446 trillion KRW in 512 cases involving securities and funds.

Among investments excluding loan receivables, KB Financial Group had the largest amount at 2.8039 trillion KRW (126 cases), followed by Shinhan Financial Group with 2.7797 trillion KRW (133 cases), Hana Financial Group with 2.6161 trillion KRW (157 cases), Nonghyup Financial Group with 1.8144 trillion KRW (55 cases), and Woori Financial Group with 430.5 billion KRW (41 cases).

The current valuation of these assets totals 9.3444 trillion KRW, which is 1.1002 trillion KRW less than the initial investment principal. The overall valuation return rate stands at -10.53%.

Looking at the valuation relative to the investment principal by financial group, Hana Financial Group (-12.22%), KB Financial Group (-11.07%), and Nonghyup Financial Group (-10.73%) all recorded losses exceeding 10%. Shinhan Financial Group was at -7.90%, and Woori Financial Group at -4.95%.

Even when considering the internal rate of return (IRR) of the top five financial groups, which reflects cumulative dividends and other factors from overseas real estate investments, the loss scale was significant. Among 514 investments for which IRR could be calculated, about 10% (51 cases) showed negative returns.

In particular, losses from commercial real estate investments in the North American region were the largest. For example, KB Securities invested 17.968 billion KRW in October 2014 in a commercial building in New Jersey, USA, in the form of securities, but the current valuation is only 1.075 billion KRW. The valuation return rate is -94.02%. Even after factoring in cumulative dividends of 9.711 billion KRW, the IRR stands at -14.14%.

Shinhan Investment Corp. invested 21.8872 billion KRW in December 2020 in securities comprising a portfolio of 30 hotels across the United States. The current valuation has dropped to 1.67 billion KRW. Assuming the current valuation amount is recovered, the IRR is approximately -63.30%.

Hana Financial Group and Nonghyup Financial Group suffered heavy losses after investing in the 20 Times Square building located in the heart of Manhattan, New York. Hana Insurance invested 11.42242 billion KRW in June 2018 in this building through securities and recorded a total loss. Although it received dividends of about 450 million KRW, the IRR was -98.49%. Nonghyup Life Insurance also invested 57.1 billion KRW around the same time, but the current valuation is zero. Cumulative dividends amount to 2.3 billion KRW, and the IRR is -98.35%.

Woori Bank invested 1.524 billion KRW in June 2008 in a fund that indirectly invests in four major cities' real estate in India but incurred losses. The current valuation is 12.02 million KRW, with a valuation return rate of -99.21%. The cumulative dividends received over 16 years were about 340,000 KRW.

The scale of investments made by the top five financial groups in the form of loan receivables, credit extensions, and debt guarantees related to overseas real estate is estimated at approximately 9.9421 trillion KRW.

Hana Financial Group had the largest amount at 3.6297 trillion KRW (98 cases), followed by KB Financial Group with 2.8494 trillion KRW (47 cases), Woori Financial Group with 1.7086 trillion KRW (63 cases), Shinhan Financial Group with 1.2193 trillion KRW (49 cases), and Nonghyup Financial Group with 535.1 billion KRW (13 cases). For loans, the investment amounts and current valuations were mostly similar.

As a decline in global commercial real estate prices centered on the United States is expected within this year, financial groups have also initiated emergency response measures. They are operating a response system to strengthen risk management related to overseas real estate investments.