Korean securities firms’ non-performing assets up 24% in Q1

[Photo by Lee Seung-hwan]

South Korean securities firms are seeing their non-performing assets grow amid growing concerns about the deteriorating soundness of real estate project financing due to the slow construction economy.

According to multiple sources from the investment bank industry on Monday, the combined non-performing assets of the country’s eight largest securities firms amounted to 2.02 trillion won ($1.54 billion) in the first quarter of this year, up 24 percent from the same period a year ago.

The non-performing asset to equity ratio also rose to 5.8 percent from 3.3 percent during the same period.

According to the Financial Supervisory Service, the financial soundness of financial firms are categorized into five levels - normal, special mention, substandard, doubtful, and estimated loss. The assets defined as the groups of substandard, doubtful, and estimated Loss are referred to as non-performing assets.

Industry insiders noted that the Korea Investment & Securities Co. had the largest volume of real estate project financing loans on credit with 2.6 trillion won as of July 6, followed by Samsung Securities Co. with 2.45 trillion won, and Meritz Securities Co. with 2.26 trillion won.

Rising concerns about delays in debt recovery amid a slowdown in the construction industry have triggered market uncertainty about the deteriorating soundness of securities firms.

However, some market sources said the matter was the quality of assets rather than the volume, citing that credit loans in project financing don’t necessarily develop into non-performing assets.

“We see the construction site, firm, and contract details as more important,” said an official in charge of real-estate project financing at a securities firm. “We make an investment in real estate project financing with low levels of risk exposure.”