Nashinpyung Downgrades Daehan Toji Trust's Short-Term Credit Rating to A3+

"Military Mutual Aid Association Needs Large-Scale Paid-in Capital Increase, Business Diversification, and Cleanup of Non-Performing Assets"

[Asia Economy Reporter Minji Lee] NICE Credit Rating downgraded the short-term credit rating of Daehan Land Trust from A2- to A3+ on the 22nd. This decision was based on the assessment that business stability has deteriorated due to the downturn in the real estate market and high dependence on land trust income.

Kwon Sin-ae, Senior Researcher at the Financial Evaluation Division 2 of the Financial Evaluation Headquarters, explained, “The business risk of borrowing-type land trust projects is increasing due to the downturn in the real estate market. Although business diversification is progressing mainly through REITs, redevelopment and reconstruction projects, and management-type land trusts with responsibility for completion guarantees, the scale of new trust sales is not large.” As of the end of March 2020, the company’s land trust income accounted for 87.5%, indicating a very high dependence on borrowing-type land trusts within the trust business portfolio.

Concerns also arise from decreased profitability due to intensified industry competition, resulting in lower commission rates and increased bad debt expenses. Researcher Kwon noted, “Profitability is declining due to the introduction of IFRS 9, expanded provision rates following changes in asset soundness classification under the Financial Investment Business Regulations, and falling commission rates. Since the second half of 2018, the number of unsold units after completion has increased, delaying fund recovery and weakening cash flow.”

The decline in asset soundness due to lower sales rates of completed projects in provincial areas was also cited as a negative factor. As of the end of March 2020, the balance of trust accounts showed an increase in unsold inventory, with a high proportion of loans estimated to be allocated to projects located in provincial regions.

Researcher Kwon stated, “From the perspective of business risk, it is now crucial to maintain market position, compose a stable business portfolio, diversify revenue structures, and enhance off-balance-sheet risk response capabilities such as responsibility for completion guarantees. We will comprehensively monitor whether financial stability improves through the large-scale paid-in capital increase by the Military Mutual Aid Association, trends in business diversification, and the potential for improving profitability and asset soundness based on the disposal of non-performing assets.”

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