The Financial Supervisory Service will ease regulations on loans arising during the process of restructuring and organizing non-performing real estate project financing (PF) business sites until the end of the year. The judgment is based on the priority of quickly organizing failing business sites, even if the self-capital ratio of some real estate PF project implementers decreases and the loan ratio of savings banks increases. As a result, savings banks can focus on organizing and restructuring non-performing business sites until the end of the year.
According to the financial sector on the 1st, the FSS announced on the 30th of last month a non-enforcement opinion that it would suspend compliance with credit extension limits for loans for the purchase of real estate PF discounted sales until the end of this year. According to savings bank supervisory regulations, savings banks can only provide real estate PF loans for projects that cover more than 20% of the funding for real estate development projects with equity from the implementing company. This is referred to as the '20% rule.' However, if a savings bank disposes of a non-performing business site through discounted sales and a new developer comes in to restructure the project, the FSS did not raise issues even if the 20% rule was violated. The FSS decided to extend the temporary easing of regulations that was scheduled to end in late June of this year until the end of the year.
For instance, if A Savings Bank disposes of a non-performing business site it holds bonds for through discounted sales, and a B developer purchases the site to push forward a real estate PF project again, according to supervisory regulations, the self-capital ratio of the B developer in the restructured project must exceed 20% for A Savings Bank to lend money to them. However, even if the self-capital ratio of the B developer falls below 20%, if certain conditions are met, A Savings Bank can still provide a real estate PF loan to the B developer.
The FSS decided to extend regulatory easing with the aim of encouraging the organization and restructuring of non-performing business sites in the savings bank sector. The long-term goal of the FSS is to have new developers purchase and transform failed development projects, thereby shedding the burdens of the real estate market. To achieve this, it is crucial to quickly organize business sites that have been deemed non-performing and place them under new developers. Lowering the regulatory threshold temporarily is key to ensuring that savings banks do not struggle while searching for new developers.
An FSS official said, "In the case of non-performing business sites, it is important to find another developer since the current one cannot continue operations," and noted, "The decision to ease regulations was made for quick organization and restructuring."
Experts have positively evaluated the recent regulatory easing measures. While the ratio of savings bank funding in some restructured business sites may increase, there is a consensus on the need for encouragement to organize overall non-performing business sites.
Lee Hyuk-jun, head of the Financial SF Evaluation Division at NICE Investors Service, said, "The extension of the alleviation of the 20% rule has provided breathing room for savings banks to organize and restructure non-performing business sites," adding, "It will help in the soft landing of real estate PFs promoted by financial authorities." He also mentioned, "However, given that the pace of disposal of non-performing business sites in the savings bank sector may slow in the second half of the year, other supplementary measures should also be considered."