Korea’s real estate PF loan balance tops $104 billion in March

[Photo by Yonhap]

South Korea is facing red flags due to rising non-performing real estate project financing (PF) loans, with the outstanding balance of such loans in the financial sector exceeding 131 trillion won ($103.65 billion) and the delinquency rate topping 2 percent.

According to data obtained by lawmaker Yoon Chang-hyun of the People Power Party from the Financial Supervisory Service, the outstanding balance of real estate PF loans in the financial sector stood at 131.6 trillion won as of the end of March, up 1.3 trillion won from 130.3 trillion won at the end of December last year.

The balance stood at below 100 trillion won until the end of 2020 but the figure surged to 112.9 trillion won by the end of 2021 and has been on a rise since.

The problem is that the delinquency rate for real estate PF loans is rising to a serious level as more real estate PF businesses face problems with profitability and fund recovery due to the real estate market downturn last year.

The delinquency rate for real estate PF loans in the financial sector was 2.01 percent as of the end of March this year, up 0.82 percentage point from 1.19 percent at the end of December last year.

The delinquency rate was only 0.55 percent at the end of 2020 and 0.37 percent at the end of 2021, but it exceeded 2 percent in March.

“With the real estate market at its lowest point, the balance of real estate PF loans across the financial sector has continued to increase, with the delinquency rate exceeding 2 percent, meaning that there are serious problems at all levels of the business,” said an official from a securities company.

By industry, banks saw the largest increase of 2.2 trillion won in real estate PF loan balance during the cited period and securities firms 800 billion won. The balance for insurers and savings banks, on the other hand, declined by 400 billion won each and credit card and capital firms by 700 billion won.

Financial authorities, in the meantime, are taking all-out measures to tackle the rise in non-performing real estate PF loans.

“Structural adjustments are inevitable, and some contractors or construction companies will face difficulties in the process, but I don’t see (the current situation) as a systemic risk,” said Financial Supervisory Service Governor Lee Bok-hyun.

The authorities are currently in the process of identifying non-performing and potentially non-performing businesses through the real estate PF lending institutions’ consortium agreement, which was reactivated in late April.

A total of 91 non-performing and potentially non-performing businesses are subject to the agreement, and 66 of them are undergoing normalization efforts with the support of maturity extensions and new capital injections.

In September, the real estate PF business normalization support fund will also be fully operational. For this fund, five asset management companies will raise more than 200 billion won each, including the 100 billion won that the Korea Asset Management Corporation will invest in the fund.