As of the end of September, the reevaluation of the viability of real estate project financing (PF) in two stages revealed that the exposure to establishments rated as cautious (C) and at risk of insolvency (D) amounted to 22.9 trillion won. The ratio of non-performing loans, indicating bad debts within the total real estate PF, was recorded at 11%.
On the 19th, the Financial Supervisory Service (FSS) announced the results of the evaluation of the viability of real estate PF and the current status of restructuring. The FSS has prepared improvement measures for the evaluation criteria for real estate PF from April to June. Subsequently, financial institutions evaluated the viability based on the new criteria at the end of June and again at the end of September.
The evaluation results indicated that the total real estate PF exposure amounted to 210.4 trillion won as of the end of last September. Compared to the end of last year, this reflects a decrease of 20.7 trillion won and a reduction of 6.1 trillion won from the end of June. The exposure rated C and D at the same time was found to be 22.9 trillion won, accounting for 10.9% of the total real estate PF exposure. The C grade was noted at 8.2 trillion won (3.9%) and D grade at 14.7 trillion won (7.0%).
Examined by sector, the C and D grade exposure for mutual finance was the highest among all sectors at 10.9 trillion won. This was followed by savings banks (4.4 trillion won), securities (3.8 trillion won), and specialized credit finance (2.7 trillion won).
The fixed non-performing loan ratio, typically indicating bad debts, increased from 5.2% at the end of last year to 11.3% at the end of September. Kim Byeong-chil, deputy governor of the FSS, noted that the fixed non-performing loan ratio would naturally improve if financial institutions were to reorganize and restructure non-performing real estate PF.
Along with this viability reevaluation, as of the end of September, provisions for real estate PF bad debts reached 11.3 trillion won. This shows an increase of 2.4 trillion won compared to the end of last year, but a decrease of 1 billion won compared to the end of June. The FSS assessed that despite the additional provisions for bad debts resulting from the viability reevaluation, the overall impact on financial institutions considering their capital ratios remains limited. However, it emphasized that continuous management of arrears and purging of non-performing loans is necessary for a soft landing of real estate PF as the C and D grade loans increase.
Financial institutions have submitted plans for reorganization and restructuring concerning establishments rated C and D to the FSS. Of the 20.9 trillion won identified for reorganization and restructuring in the first evaluation, 4.5 trillion won has been completed. The FSS projects that if the remaining establishments are actively managed, it could lead to the supply of approximately 104,000 dwellings by the first half of next year.
The FSS expressed expectations that the reevaluation and reorganization of real estate PF would lead to the advanced management of real estate PF by financial institutions. The FSS plans to guide the activation of quick sales to ensure swift post-management of non-performing establishments.