Securities Firms' Real Estate PF Debt Guarantees Limited to 100% of Equity Capital Starting Next Year

[Asia Economy Reporter Yoo Hyun-seok] The debt guarantee limit for real estate project financing (PF) by securities firms will be introduced in July this year. As a result, securities firms will not be able to provide debt guarantees for real estate PF exceeding their own capital starting from the second half of next year.

The Financial Services Commission announced on the 12th that it has proposed an amendment to the Financial Investment Business Regulations containing this content. The public notice period is until the 22nd of this month.

The amendment defines the ratio of real estate PF debt guarantees to a securities firm's own capital as the 'Real Estate Debt Guarantee Ratio' and limits it to a maximum of 100%.

However, the ratio applied to the guaranteed amount varies by target. Domestic residential real estate is 100%, domestic commercial or overseas residential/commercial real estate is 50%, and domestic and overseas social overhead capital (SOC) is 0%, among others.

For example, if a securities firm with 100 million KRW in own capital provides a debt guarantee for domestic residential real estate PF, the maximum guarantee amount is 100 million KRW. However, for domestic commercial or overseas residential/commercial real estate, the maximum debt guarantee can be 200 million KRW.

The amendment is scheduled to take effect in July this year. Sequentially, the real estate debt guarantee ratio will be limited to 120% until the end of this year, 110% or less from early next year until the end of June, and then limited to 100% or less thereafter.

This amendment is a follow-up measure to the 'Real Estate PF Exposure (loan, guarantee, etc. risk exposure) Soundness Management Plan' confirmed at the 3rd Macroprudential Analysis Council held by the Financial Services Commission, Ministry of Economy and Finance, and Financial Supervisory Service in December last year.

The purpose is to limit the debt guarantee limit as securities firms may face liquidity and credit crises due to excessive debt guarantees.

This content was produced with the assistance of AI translation services.