Shinhan Financial takes steps to tackle real estate risks

[Courtesy of Shinhan Financial Group]

Shinhan Financial Group’s subsidiaries will join forces to proactively address real estate financial risks and manage the overall exposure of real estate financing across the group from the sourcing stage, the group said on Sunday.

The move was prompted by concerns in the South Korean real estate project financing sector that have escalated since 2023, coupled with the increasing worries about potential losses in overseas real estate investments.

Shinhan Financial Group, which is comprised of banking, securities, and insurance business companies, intends to reduce risks by integrating management at the group level, with measures including adjusting the participation ratios of individual subsidiaries when receiving a project financing deal. Deals that specifically involve two or more subsidiaries will be subject to integrated management.

the group conducted a preemptive comprehensive investigation of its overseas real estate assets totaling 4 trillion won ($2.97 billion) in July 2023, followed by additional scrutiny of the bottom 10 percent of assets for evaluation losses in November of the same year, reflecting losses of 130 billion won in the fourth quarter of 2023.

Not content with mere loss management, recent internal discussions led Shinhan Financial Group to decide to manage the entire real estate finance process at the group level rather than on a company-by-company basis from the initial stages of signing real estate-related contracts, adhering to the ‘Investment Guide for Group Deals.’ The strategy for overseas real estate finance will also prioritize direct investments over indirect ones to clearly identify exposure and minimize risks.

When assessing deals, Shinhan Financial Group plans to analyze exposure by country (region) and builder, and rigorously manage operational limits by segmenting exposure. The group aims to build a database to enable precise predictions via scenario-based provisions and loss reflections during the monitoring and post-management stages.

Shinhan Financial Group has also set mid- and long-term goals to expand these processes to all financial systems, and not limit them to real estate finance.