Financial Authorities to Directly Manage 56 Trillion Won Overseas Real Estate Risks

[Asia Economy Reporter Park Jihwan] Financial authorities have decided to conduct a focused inspection on the overseas real estate investment practices of the securities industry in the second half of the year. They plan to collect self-inspection data from securities firms by next month and carry out on-site audits based on this data.

According to financial authorities on the 28th, on the 19th, they sent an official letter to 20 domestic securities firms requesting a 'self-inspection regarding overseas real estate investment and resale,' instructing them to report the CEO's inspection results to the board of directors and submit related materials to the authorities.

The financial authorities plan to conduct on-site inspections of major securities firms in the second half of the year based on the submitted materials. Securities firms with significant overseas real estate purchases and fund setups, such as Meritz Securities, Mirae Asset Daewoo, NH Investment & Securities, Korea Investment & Securities, KB Securities, and Hana Financial Investment, are expected to be the main targets.

According to the Korea Financial Investment Association, as of the end of April, the total balance of overseas real estate funds reached 55.668 trillion KRW. The overseas real estate fund balance, which was 11 trillion KRW in 2015, has increased by about 10 trillion KRW annually, surging fivefold in five years. The market expects fund redemptions amounting to 10 trillion KRW annually starting from 2022, raising concerns about non-performing assets and loss bombs in a significant portion of these funds.

A Financial Supervisory Service official stated, "Financial companies need to establish or improve internal controls and risk management procedures for real estate assets as part of asset soundness management," adding, "This inspection of securities firms' overseas real estate risk management practices is in line with the same purpose."

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