Korea Ratings: Secondary Financial Sector PF Exposure Declining as Restructuring Progresses

On April 29, Korea Ratings analyzed that the exposure (risk exposure amount) of the secondary financial sector?including securities firms, savings banks, and capital companies?has decreased due to progress in project financing (PF) restructuring.

Jung Hyukjin, Head of Financial and Structured Finance Evaluation at Korea Ratings, stated during the webcast "PF Restructuring: How Far Have We Come? - Analysis of Residual Risks in the Secondary Financial Sector" held on this day, that as of December last year, the total PF exposure in the financial sector was 202.36 trillion won, a decrease of 14.2 trillion won compared to June of the same year.

Additionally, exposure classified as "precautionary or below" in the financial sector also fell by 6.5 trillion won, from 21 trillion won to 19.2 trillion won. Jung Hyukjin explained, "PF exposure decreased due to project completion and liquidation or restructuring," and added, "The reduction in precautionary or below exposure through liquidation and restructuring exceeded the amount shifting into the precautionary or below category, indicating that restructuring is making meaningful progress."

Within this, PF exposure in the secondary financial sector decreased by 1.3 trillion won, from 70.6 trillion won to 69.3 trillion won during the same period. By sector, securities firms saw an 18% increase in new PF business, mainly led by large companies, rising from 26.5 trillion won in June last year to 31.3 trillion won in December. In contrast, specialized credit finance companies saw a 12% decrease from 27.5 trillion won to 24.1 trillion won, and savings banks saw a 16% decrease from 16.6 trillion won to 13.9 trillion won.

A similar trend was observed in precautionary or below exposure in the secondary financial sector. Securities firms saw a 6% increase from 3.2 trillion won to 3.4 trillion won. In contrast, specialized credit finance companies and savings banks saw decreases of 13% and 20%, respectively, with specialized credit finance companies dropping from 2.4 trillion won to 2.1 trillion won, and savings banks from 4.5 trillion won to 3.6 trillion won.

However, he explained that since an increase in "precautionary or below" exposure centered on bridge loans is expected within the year, prompt liquidation and restructuring are necessary. He stated, "We expect that, by 2025, high-risk bridge loans will continue to shift into the precautionary or below category," and added, "To maintain the soundness of PF, prompt liquidation and restructuring of existing precautionary or below exposures are necessary."

In response to a question about whether the liquidation and restructuring of PF projects might be progressing too slowly, he explained that the pace is actually relatively fast. He noted, "Looking at the actual progress of restructuring, across the entire financial sector, 6.5 trillion won was either provisioned or restructured between June and December 2024, out of a total of 20.9 trillion won," and evaluated, "This means that 31% was restructured in just six months, which is significant progress."