As South Korea’s high interest rates and sluggish real estate market raise concerns about the stability of real estate project finance (PF), recent data has revealed an important fact. It is said that the capital company alone has a loan balance of 24 trillion won ($18.5 billion), and the delinquent balance has soared to an astonishing 1 trillion won.
According to the breakdown of real estate PF loans by financial companies (banks, insurance companies, mutual finance, savings banks, securities companies, capital companies), as of the end of September this year, the loan balance of capital companies reached 24 trillion won, while banks (44 trillion won) 200 billion won), followed by insurance companies (43.3 trillion won), followed by savings banks (9.8 trillion won) and securities companies (6.3 trillion won). The analysis was conducted by the Mainichi Keizai Shimbun on Monday based on data from Rep. Yoon Chang-hyun’s office and the Financial Supervisory Service (FSS).
This is due to a significant increase in PF financing by secondary financial institutions such as capital companies, savings banks, and mutual finance in order to diversify their businesses in response to the real estate boom that began in 2018.
Although banks and insurance companies had large real estate PF loan balances, their delinquency rates were relatively low compared to other companies in the circle. Banks kept the delinquency rate at 0%, while insurance companies reported it at 1.1%. In contrast, delinquency rates for capital companies and securities companies were 4.6% and 13.0%, respectively.
The overdue balance of real estate PF loans of capital companies has reached an alarming level, exceeding 1 trillion won with overdue amounts exceeding one month. As of September last year, the delinquent balance of capital companies was about 300 billion won, which more than tripled within a year. Following capital companies, securities companies had overdue balances of 900 billion won as of the end of June this year, followed by insurance companies and savings banks with about 500 billion won each, and mutual finance at about 200 billion won.
Among the five criteria used to judge the creditworthiness of financial institutions, the evaluation of loan balances that fall under the categories of “below standard”, “doubtful”, and “expected loss”, which indicate the scale of non-performing loans, also shows signs of crisis, especially among capital companies and securities companies. is remarkable. In the substandard or nonperforming real estate PF loan category, securities companies had the largest balance at 1.2 trillion won, followed by capital companies with 1 trillion won.
In PF loans, while loans from banks are often prioritized, subordinated debt is often held by capital companies and savings banks. If the crisis among construction companies spreads, further loan delays and defaults could occur. This situation could be catastrophic for capital companies, which have much larger loan balances than securities companies or savings banks.
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