[PF Restructuring] ④ "Quarterly Implementation from Next Year" Authorities to Continuously Monitor Through Dedicated Team

Q&A

The financial authorities plan to operate a dedicated team to continuously monitor and manage the business viability evaluation results conducted quarterly by financial companies, even after the first and second rounds of real estate project financing (PF) site evaluations this year.

On the 19th, the financial authorities forecast that most of the projects classified as non-performing this year will complete their liquidation procedures by the first half of next year. Starting next year, they plan to guide all projects with PF exposure (risk exposure) at the end of each quarter to complete a business viability evaluation within one month after the quarter ends and finalize liquidation or restructuring plans within two months.

Below are questions and answers related to the real estate PF business viability evaluation results and future plans.

What is the outlook for a smooth landing of PF going forward?

As the recovery of the real estate PF market is delayed and the fixed non-performing loan ratio has increased by 6.1 percentage points due to the 'sorting out' of projects, continuous non-performing loan liquidation, restructuring, and soundness management by financial companies are necessary for a smooth PF landing. Accordingly, the Financial Supervisory Service (FSS) plans to actively encourage financial companies to liquidate and restructure non-performing loans and strengthen soundness management by expanding loss absorption capacity. Going forward, financial companies will evaluate the business viability of all PF projects quarterly, and the FSS will continuously monitor and manage the evaluation results through each sector's inspection bureau and the dedicated PF business viability evaluation team. If the non-performing loan liquidation and restructuring plans are smoothly implemented, improvements in soundness indicators such as the fixed non-performing loan ratio are expected to become visible by 2025.

Why did non-performing loans increase only slightly despite a significant expansion of the business viability evaluation targets in the second evaluation?

Projects with arrears, arrears grace periods, or more than three maturity extensions that had progressed to non-performance were included in the first business viability evaluation. Most projects newly included in the second evaluation were normal projects, so the scale of new non-performing loans resulting from the second evaluation is not large.

Will the concentration of properties occur if all non-performing projects are put up for auction or public sale at once?

Many non-performing projects are already undergoing auctions or public sales, and the timing of auction listings is dispersed according to the loan maturity dates of each project. Therefore, it is expected that auction properties will not be concentrated all at once. Additionally, main PF and guaranteed projects may be excluded from auction or public sale listings considering the circumstances of each project.

Is there a concern that the non-performance of specific projects or developers could spread to other normal projects, causing a chain reaction?

Most developers involved in projects under watch or at risk of non-performance hold only a single project, and even if developers provide reciprocal collateral of profit rights across multiple projects, the possibility of chain non-performance spreading to normal projects due to the failure of some projects is low. While collateral execution on profit rights of normal projects may occur, the collateral amount is minimal compared to the total project scale, and most projects continue operations through lender consortium agreements.

Was the business viability evaluation applied mechanically without reflecting the circumstances of each project?

Financial companies comprehensively considered various factors beyond the number of maturity extensions when evaluating business viability, including the presence of guarantees, restructuring status, and the unique characteristics of each project.

Does the business viability evaluation suppress funding support for normal projects?

The goal of the business viability evaluation is to sort out and restructure non-performing projects while ensuring continuous funding support for normal projects. For projects evaluated as normal (good or average) by financial companies, funding such as maturity extensions will be supported without disruption to allow the PF projects to proceed normally.

The scale of liquidation and restructuring to be completed by the end of the year is about 9 trillion won, which is half of the 20 trillion won announced in June. In June, it was said that liquidation would be completed within the year. Has it been delayed? How much of the target has been achieved?

First, let me clarify the facts. The earlier announcement was not about completing liquidation by the end of the year but about receiving post-management plans by the end of the year and managing according to those plans. The liquidation achievement rate compared to the plan was 118% as of the end of October. Therefore, progress is ahead of the planned schedule.

Is there any adverse impact of political instability on the PF smooth landing policy? Are there additional measures considering such adverse effects?

So far, there have been no confirmed cases where the smooth landing plan was specially affected. Evaluations for all projects have been completed, and provisions have been made accordingly. The remaining task is how to liquidate projects reflecting losses. We plan to conduct weekly checks to ensure project liquidation proceeds as planned.

Why is there a large difference in liquidation rates between Saemaeul Geumgo and savings banks?

Due to methodological differences, Saemaeul Geumgo has sold many assets to Korea Asset Management Corporation (KAMCO) funds. This difference has increased the liquidation and restructuring ratio. We are exploring various methods to facilitate easier and more active sales. We will inform you about the various methods as soon as liquidation progresses.