FSC holds real estate PF situation review meeting

Some temporary financial deregulation measures extended

Regulator urges smooth funding for viable projects

A housing reconstruction site in Seoul. [Herald DB]
A housing reconstruction site in Seoul. [Herald DB]

The delinquency rate on real estate project financing (PF) loans has worsened to the mid-4 percent range. The rate on land-backed loans — a type of financing handled mainly by secondary financial institutions in the early stages of PF projects — climbed above 30 percent. The deterioration reflects a rise in overdue amounts even as total outstanding loan balances shrank.

The Financial Services Commission said Thursday it held a "real estate PF situation review meeting" with the Financial Supervisory Service, the Ministry of Economy and Finance, and the Ministry of Land, Infrastructure and Transport to discuss delinquency trends, project viability assessments, and the future direction of temporary financial deregulation measures.

According to the FSC, total PF exposure stood at 169.8 trillion won ($109 billion) as of end-March, down 4.5 trillion won from the previous quarter.

The decline reflected a larger reduction from completed, resolved, or restructured projects than the volume of newly arranged PF deals. New PF arrangements in the first quarter reached 16.8 trillion won, up 50 percent — or 5.6 trillion won — from the same period last year, indicating that fresh funding continues to flow without disruption to viable projects, the FSC said.

The PF loan delinquency rate as of end-March was 4.65 percent, up 0.77 percentage points from the previous quarter. The delinquency rate on land-backed loans at smaller financial institutions — including savings banks, specialized credit finance companies, and mutual finance firms — also rose 2.20 percentage points quarter-on-quarter to 31.88 percent. Both rates had improved to the 3 percent range and 20 percent range, respectively, as of end-December last year, only to reverse course within a single quarter. The FSC said seasonal factors were among the contributors.

The FSC's end-March project viability assessment found that loans classified as "caution" or "at risk of insolvency" totaled 16.4 trillion won, equivalent to 9.6 percent of total PF exposure — up 1.7 trillion won from the previous quarter, driven by seasonal factors and rising construction costs and market interest rates.

A cumulative 18.9 trillion won in loans tied to projects flagged as caution or at risk had been resolved or restructured through end-March.

The FSC said the financial sector's active efforts had significantly reduced the number of distressed projects requiring resolution or restructuring, but that the pace of such work has slowed somewhat since late last year. In response, the commission said it plans to actively monitor financial institutions' progress in reducing bad assets and encourage performance improvements to prevent newly distressed projects from becoming entrenched.

The FSC also decided Thursday to extend six of the nine temporary real estate PF deregulation measures that had been set to expire at the end of the first half of this year, keeping them in place through December. The commission said it will reassess whether to normalize those measures in light of real estate PF conditions in the second half.

The extended measures include liability exemptions for executives and employees involved in fund supply, restructuring, and resolution, as well as permission to separately classify asset soundness when providing new funds. Two measures in the insurance sector — including recognition of repurchase agreement (repo) bond sales to support PF normalization — and two measures for savings banks — including relaxed limits on PF-related securities holdings — are also covered.

The FSC urged financial institutions to ensure that new funding flows smoothly to viable projects, saying it is "actively exploring multiple approaches to promote smooth housing supply and ease difficulties at construction sites, while continuing to manage the financial soundness of financial institutions for the healthy growth of the real estate PF market."


ehkim@heraldcorp.com