Ranked 58th in construction capacity evaluation, Shin Dong-A Construction has filed for corporate rehabilitation (formerly known as court receivership), causing concern among banks. Due to the construction market recession, both small to medium-sized and large construction corporations are entering restructuring, which could lead to significant losses for the banking sector. Financial authorities are also checking the borrowing funds of small and medium-sized construction corporations and the impact on the financial sector.
According to the Financial Statistics Information System on the 9th, as of the end of the third quarter of last year, the loan amount for the construction sector at 20 domestic banks was 46.5074 trillion won, an increase of 3.7111 trillion won compared to the same period of the previous year (42.7963 trillion won). This is the largest amount recorded since the related statistics began.
The soundness of loans in the construction sector is deteriorating. As of the end of the third quarter of last year, the arrears for construction sector loans at the five major banks—Kookmin, Shinhan, Hana, Woori, and NongHyup—amounted to 1.041 billion won, which is an increase of 209 million won compared to the same period of the previous year (832 million won). The amount of loans classified as non-performing loans (overdue loans for more than three months) reached 4.284 billion won, a figure that marks a 54% (2.780 billion won) increase from the same period last year.
Financial authorities explained that the impact of Shin Dong-A Construction's filing for corporate rehabilitation on the financial sector is limited. However, concerns about a massive restructuring in the construction industry are emerging within the financial sector. Not only small and medium-sized construction corporations but also the financial health of mid-sized and large corporations is deteriorating. Among construction corporations ranked within the top 30, as of the third quarter of last year, 10 corporations exceeded the appropriate liability ratio of 200%. According to the Ministry of Land, Infrastructure and Transport's construction industry knowledge information system, the total number of construction corporations that filed for bankruptcy by November of last year was 27, which is approximately double the 13 corporations that reported the same during the previous year.
The banking sector sees a low possibility of mass bankruptcies but believes that losses will be inevitable if restructuring intensifies.
A spokesperson from a commercial bank said, "Concerns about the construction sector’s instability have been consistently raised, so we are strengthening our monitoring," adding, "While it seems unlikely that there will be a mass bankruptcy of construction corporations under government support, it is expected that quite a few corporations will enter restructuring processes such as workouts or debt adjustments."