Secondary Financial Sector's Joint Investment Funds 'Self-Sell' Non-Performing PF... Savings Banks 73%, Capital Companies 88%

Suspicion of 'Simple Deferral' of PF Non-Performing Loans Avoiding Disadvantageous Early and Public Auctions
Cases Confirmed Where Sale Amount Exceeds Investment Amount
Assemblyman Kim Sang-hoon: "Difficult to Deny Criticism of Obstructing PF Normalization Measures"

It has been revealed that the so-called 'parking suspicion transactions,' where the secondary financial sector sells its own distressed real estate project financing (PF) loan claims to a jointly invested fund (NPL fund) that they themselves manage to resolve, account for up to 88%. There are criticisms that the secondary financial sector tried to simply defer PF distressed loans while avoiding auctions and public sales.

According to the 'Distressed PF NPL Fund Sales Status' submitted on the 7th by the Financial Supervisory Service, the Korea Federation of Savings Banks, and the Korea Credit Finance Association to Assemblyman Kim Sang-hoon of the National Assembly's Political Affairs Committee, savings banks resold distressed PF loan claims by investing an average of 73% (71.5% in the first round, 75.2% in the second round) in the jointly formed NPL fund, and capital companies resold at an average of 88% (87.1% in the first round, 88.9% in the second round).

In the case of savings banks, in September last year, the Korea Federation of Savings Banks and 10 savings banks formed the first fund with 33 billion KRW and sold 23.6 billion KRW worth of assets. In the second fund formed in May-June this year, 34 savings banks invested 511.2 billion KRW and sold 384.8 billion KRW. Capital companies saw 9 firms invest 150 billion KRW in the first fund last September and sell 130.7 billion KRW, while 7 firms invested 251 billion KRW in the second fund formed in May this year and sold 223.1 billion KRW.

Specifically, among savings banks, 29 out of 44 sold distressed bonds equivalent to three-quarters of their investment amount, and 3 savings banks sold amounts larger than their investment. In the case of D Savings Bank, they sold NPLs worth 5.4 billion KRW, far exceeding their investment amount of 3 billion KRW. Among capital companies, 14 out of 16 firms sold distressed bonds, with 2 firms having a 100% ratio of investment to sales amount, and another firm having a ratio of 104.5%.

Both savings banks and capital sectors saw a significant increase in demand for the second fund compared to the first. Participating savings banks increased more than threefold from 10 to 34, and investment amounts surged 15 times from 33 billion KRW to 511.2 billion KRW. The matching rate between investment and sales amounts also increased by 3.7 percentage points from 71.5% in the first round. For capital companies, although the number of participants decreased from 9 to 7 in the second fund compared to the first, the investment amount increased by 167% from 150 billion KRW to 251 billion KRW. The matching rate between investment and sales amounts also rose by 1.8 percentage points to 88.9% compared to the first fund.

Assemblyman Kim analyzed that the reasons behind the significant increase in the size of the second NPL fund include ▲the judgment that parking was possible ▲minimizing losses from low-price sales (auctions and public sales) ▲easing delinquency rates and provisioning burdens ▲avoiding pressure from financial authorities to clean up distressed business sites ▲and incentives such as expecting profits by repurchasing after the real estate market recovers. The secondary financial sector planned to form a third joint fund, but the Financial Supervisory Service's intervention has halted the additional formation of joint funds.

Assemblyman Kim stated, "Although it cannot be concluded that financial companies have negative intentions solely based on parking transaction suspicions, it is difficult to deny the criticism that distressed bonds are not being resolved but simply deferred, hindering the financial authorities' restructuring of distressed business sites and PF normalization measures through land price adjustments." He added, "Since business feasibility evaluations will switch to continuous evaluations from December, activating auctions and public sales, and joint fund formations are blocked, there is a concern that individual companies' collusive parking will become more rampant."