Delinquency rates on project financing loans raise concerns in financial sector

[Photo by Yonhap]

The delinquency rate on real estate project financing (PF) loans at South Korean securities firms has surged to the 15 percent range, raising concerns about PF non-performing assets across the financial sector.

At the end of March, the overall delinquency rate for real estate PF loans in the financial sector stood at 2.01 percent, up by 0.82 percentage points compared to the end of last year’s rate of 1.19 percent. During the same period, the outstanding balance of real estate PF loans rose by 1.3 trillion won, from 130.3 trillion won to 131.6 trillion won.

By sector, securities firms recorded a significant surge in the delinquency rate, hitting 15.88 percent, which represents a 5.5 percentage point jump from 10.38 percent at the end of last year. The delinquency rates for other sectors were 4.07 percent for savings banks, 4.2 percent for specialized credit finance businesses, 0.66 percent for insurers and 0.1 percent for mutual finance companies. Commercial banks had minimal delinquency rates due to measures taken to address overdue obligations.

Financial authorities said efforts to normalize and restructure troubled real estate projects are underway, and starting from September, a fund to support PF project normalization worth 1 trillion won will be fully operational, which is expected to slow down the pace of delinquency rate increases.

“The upward trend in delinquency rates is expected to gradually stabilize,” said a financial authority official, adding that “PF non-performing assets are being normalized and restructured in an orderly manner through preemptive measures such as PF loan agreement and other corrective actions.”

Regarding the sharp increase in delinquency rates among securities firms, the official said it is manageable since the delinquent balance of PF loans accounts for only 1.1 percent of their equity capital.

The Financial Services Commission held a meeting on Tuesday to hear industry comments on the application of the PF lender agreement and the state of the real estate PF market.

Prudential supervision of troubled businesses is also underway through the PF loan agreement, which was reinstated at the end of April. Currently, 91 businesses are covered by the agreement, and efforts for normalization, including maturity extensions and new funding support, are being pursued for 66 of these businesses.

Meanwhile, Korea Asset Management Corporation (KAMCO) plans to launch the fund to support PF business normalization.