[Click e-Stock] "Real Estate PF Soft Landing Still in Progress"

On July 7, NH Investment & Securities commented on the corporate bond market, stating, "Both domestic and overseas credit spreads (the difference between government bond and corporate bond yields) are narrowing," and analyzed that, "Risks associated with real estate project financing (PF) are currently at a lower level compared to the past, as the government-led soft landing is underway."

On this day, Choi Seongjong, a researcher at NH Investment & Securities, said, "There is a strong trend centered on sectors where credit rating adjustments are limited." He added that, last week, five companies succeeded in raising more funds than their initial targets during demand forecasting.

As credit rating agencies made adjustments to the credit ratings of companies in unfavorable industries during their regular semiannual reviews, concerns about further downgrades persist. The credit rating downgrade of Lotte Chemical also led to adjustments in the credit ratings of Lotte Holdings and other Lotte affiliates.

Differentiation among industries is expected to continue in the second half of the year. In overseas corporate bond markets, the credit spread of U.S. high-yield bonds narrowed significantly due to the U.S.-Vietnam trade agreement and favorable economic indicators. In Europe, expectations of additional benchmark interest rate cuts led to a decline in corporate bond yields.

The restructuring of real estate PF has been completed for 52.7% of the targeted projects, and the results of the fourth business feasibility assessment for real estate PF have been announced. The total PF exposure (outstanding loan balance) decreased by 11.5 trillion won year-on-year to 190.8 trillion won, mainly due to the restructuring and liquidation of distressed projects. As of the first half of the year, restructuring was completed for about 52.7% of the projects that required liquidation or restructuring.

Researcher Choi noted, "Although the amount of loans subject to real estate PF restructuring is increasing, considering the low delinquency rates and high loan loss reserve ratios, especially among banks and insurers, the risk of systemic contagion appears to be limited." He added, "However, caution regarding certain secondary financial institutions remains."

Policy support from financial authorities to facilitate the soft landing of real estate PF is also having a positive effect. Temporary financial regulatory easing measures related to real estate PF have been extended until the end of the year, and the real estate PF soundness system will be applied flexibly depending on market conditions. The commercial paper (CP) interest rate also remains stable.

Choi further commented, "Although the number of projects subject to restructuring increased in the first quarter of this year, raising concerns, at this point, the risks related to real estate PF appear to have eased compared to the second half of 2022 and 2023."