FSS Inspected Savings Banks' PF... Suspicious 'Normal' Loans Totaling 1.3 Trillion Won
Classified as 'Normal' Despite Low Progress and Sales Rates
Financial Supervisory Service to Specify Feasibility Evaluation Criteria
[Asia Economy Reporter Minwoo Lee] It has been revealed that loans amounting to 1.3 trillion KRW, classified as 'normal' despite low progress or sales rates among real estate project financing (PF) loans managed by savings banks, exist.
According to the financial sector on the 21st, the Financial Supervisory Service (FSS) recently inspected the business feasibility evaluations of 1,174 PF loan projects of savings banks and obtained these results. Although the number of projects where construction was actually halted was relatively small at 24, the loan amount for 'watchlist projects' with low progress and sales rates was 2.2 trillion KRW. In particular, the loan amount classified as 'normal' in terms of soundness by savings banks accounted for 1.3 trillion KRW, representing 57.8% of the total.
Accordingly, the FSS judged that there is a risk that savings banks may conduct business feasibility evaluations arbitrarily and optimistically, and plans to prepare measures to further specify the criteria for business feasibility evaluation. Additionally, the FSS is currently inspecting the business feasibility evaluations of real estate PF loans in credit finance companies and mutual finance sectors.
PF loans handled by savings banks began to expand after the tightening of household loan regulations. They increased from 6.3 trillion KRW at the end of 2019 to 9.5 trillion KRW at the end of last year. As of March, the amount had already reached 10.4 trillion KRW. The problem is that concerns over delays or halts in PF projects are growing due to the recent downturn in the real estate market combined with rising raw material and labor costs. In the worst case, PF loans could lead to insolvency in multiple savings banks.
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This is a point that FSS Governor Lee Bok-hyun has expressed concern about several times. On the 5th, Governor Lee urged CEOs of credit finance companies, expressing concerns about the expansion of corporate loans including real estate PF, stating, "When handling loans, credit screening should focus on the borrower's repayment ability rather than collateral, and after loan issuance, periodic checks on changes in the borrower's credit risk are necessary." At the savings bank CEO meeting on the 8th, he emphasized, "PF loans require shortening the inspection cycle including on-site inspections and conducting thorough business feasibility evaluations reflecting sales rates," and added, "The FSS will also focus on inspecting whether appropriate loan loss provisions are being accumulated for PF loans across all savings banks."
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