North America-Originated Overseas Real Estate Fear... Authorities "Strengthen Monitoring of Alternative Investments in Banking Sector"

Financial Supervisory Service Pre-announces Amendment to 'Banking Supervision Rules'
Regular Reports on Soundness Classification, Provision Reserves, Remaining Maturity, Investment Areas, etc.

Amid growing concerns about the overseas real estate market centered on North America, financial authorities are strengthening continuous monitoring of alternative investments, including overseas real estate investments by domestic financial companies.

According to the Financial Supervisory Service (FSS) on the 2nd, the financial authorities have pre-announced a revision to the "Banking Supervision Business Implementation Rules," which includes the establishment of related forms in the business report for monitoring alternative investments in the banking sector.

An FSS official explained, "The purpose is to monitor asset management status and continuously supervise soundness in order to observe the current status of alternative investment operations by domestic banks."

With this revision to the implementation rules, banks will be required to regularly report to the financial authorities the investment balance by underlying asset of alternative investments, including soundness classification, provision amounts, remaining maturity, and investment regions.

Overseas real estate has recently shown a sharp decline in prices, especially centered on North America. As of the end of September last year, the balance of alternative investments by domestic financial companies in real estate in the U.S., Europe, and other regions reached 56.4 trillion KRW. Among these, the amount invested in single projects where the location is identifiable was recorded at 35.8 trillion KRW.

The amount of domestic financial companies' investments that have lost their benefit of term (EOD) was 2.31 trillion KRW, accounting for 6.5% of the total investment amount. In particular, since September, the number of EOD projects increased by three more, raising the amount of investment at risk of loss to 2.46 trillion KRW.

Meanwhile, the FSS is receiving overseas real estate investment lists from financial companies and building a database (DB) on a project-by-project basis. Based on this, they plan to continuously monitor risk management practices such as provision accumulation.

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