PF Exposure at 186.6 Trillion Won in Q2
PF Loan Delinquency Rate Drops to 4.39%
C and D Grade Loans Decrease to 20.8 Trillion Won
The financial authorities will extend the temporary easing of financial regulations for financial companies, implemented to facilitate the resolution and restructuring of real estate project financing (PF), until the end of this year. They also plan to introduce institutional improvements within the year to manage soundness based on the capital adequacy ratio of PF project sites.
On September 25, the Financial Services Commission, Financial Supervisory Service, Ministry of Economy and Finance, Ministry of Land, Infrastructure and Transport, and other related agencies held a written 'Real Estate PF Status Review Meeting' at the Korea Federation of Banks in Jung-gu, Seoul. They discussed the current status of PF loan delinquency rates in the financial sector, results and future plans for business feasibility assessments, plans to extend temporary regulatory relief measures related to real estate PF, and directions for improving the soundness system for real estate PF.
As of the end of June, PF risk exposure amounted to 186.6 trillion won, a decrease of 4.1 trillion won compared to the previous quarter. This indicates that the reduction from project completion and resolution or restructuring exceeded the amount of new PF exposures.
In the second quarter of this year, new PF transactions totaled 23.6 trillion won, an increase of 8.5 trillion won compared to the same period last year. New funds continued to flow into the PF market, mainly for projects with strong business viability.
The delinquency rate for financial companies’ PF loans (118.9 trillion won) was 4.39%, down 0.11 percentage points from the previous quarter. The delinquency rate for land-backed loans by small and medium-sized financial institutions such as savings banks, specialized credit finance companies, and mutual finance companies (14.1 trillion won) was tallied at a high 29.97%.
The Financial Services Commission explained, "Although the balance of land-backed loans decreased by 15.6 trillion won, the balance of delinquent loans increased by 2.2 trillion won, which had a significant impact," adding, "Despite a reduction in the PF loan balance, the impact of financial institutions clearing out bad debts was evident."
According to business feasibility assessments, as of the end of June, loans classified as 'caution' or 'concerned about insolvency' amounted to 20.8 trillion won, accounting for 11.1% of total PF exposure. The PF business feasibility assessment is divided into four grades: 'good,' 'average,' 'caution,' and 'concerned about insolvency,' with the latter two grades subject to restructuring.
Of the 20.8 trillion won in 'caution' or 'concerned about insolvency' projects, more than half-12.7 trillion won-has been resolved or restructured. Of this, 8.7 trillion won was resolved through auctions, private contracts, and amortization, while 4 trillion won was restructured through new funding and capital structure adjustments.
At the meeting, it was decided to extend 10 out of 11 temporary financial regulatory relief measures related to real estate PF, which were originally scheduled to end in the first half of the year, until the end of the year.
Common measures across the sector include indemnity for employees involved in funding, restructuring, or resolution, and allowing separate classification of asset soundness when providing new funding. These measures are intended to continuously support the resolution and restructuring of real estate PF project sites and the provision of new funds.
Directions for improving the real estate PF system were also discussed. The construction industry requested a phased increase in the target capital adequacy ratio for PF projects (20%), noting a significant gap between the target and the current ratios of domestic project operators.
The financial sector suggested that various factors should be considered when differentiating risk weights for PF project sites, and called for reasonable adjustments to the regulatory limits on real estate PF loans. Accordingly, it was decided to differentiate PF loan risk weights based on the capital adequacy ratio.
The Financial Services Commission stated, "We will gather further industry opinions, prepare an institutional improvement plan, and finalize the plan within the year after consultations with relevant agencies, including a grace period for implementation and a phased schedule."
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