High Interest Rates + Asset Market Slump... Insurance, Card, and Credit Finance Companies' Real Estate PF Delinquency Rates Surge

Insurance Companies' Real Estate PF Loan Delinquency Amount Quadruples in 3 Months... Non-Bank Lenders Also Surging

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] Delinquent loans on real estate project financing (PF) by insurance, securities, and capital companies are rapidly increasing. This is due to the rise in the base interest rate and the resulting weakness in the asset market. Financial authorities agree that since the trend of interest rate hikes is likely to continue at least until the first half of next year, it is necessary to manage liquidity risks and review contingency plans.

According to data submitted by the Financial Supervisory Service to Yoon Chang-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, as of the end of March this year, the delinquent balance of real estate PF loans by insurance companies was 129.8 billion KRW. This represents an increase of about 305% compared to the end of the previous year (30.5 billion KRW).

The delinquency rate of real estate PF loans by insurance companies also rose by 0.24 percentage points (p) from the end of the previous year to 0.31%. However, the balance and proportion of non-performing loans overdue for more than three months were 19.2 billion KRW and 0.05%, respectively, showing a decrease of 11.3 billion KRW and 0.02 percentage points compared to the end of the previous year.

The situation was similar for securities companies and specialized credit finance companies. For securities companies, during the same period, the delinquent amount of real estate PF loans was 196.8 billion KRW, an increase of 16.4% compared to the end of the previous year. The balance and proportion of non-performing loans were 345.9 billion KRW and 8.3%, respectively, rising by 29.8% and 2.4 percentage points compared to the end of the previous year. For specialized credit finance companies, the delinquent amount as of the end of June was 228.9 billion KRW, 2.5 times higher than the end of the previous year, and the delinquency rate rose by 0.4 percentage points to 0.9%.

The expansion of delinquent balances and ratios in real estate PF loans is interpreted as a result of the base interest rate hikes and the downturn in the real estate market. The Bank of Korea's base interest rate rose from 1.0% in the fourth quarter of last year to 1.25% in the first quarter and 1.75% in the second quarter of this year, and was further raised to 2.50% in August. Especially as global inflation continues and the United States is expected to raise its base interest rate to around 4% by next year, domestic interest rates are also likely to continue rising for the time being.

Accordingly, the asset market, led by real estate, is also in decline. According to the Ministry of Land, Infrastructure and Transport, from the beginning of this year to July, nationwide housing sales volume was 349,760 units, down 46% compared to the same period last year, and unsold houses increased by about 105% to 31,284 units. Many expect the real estate market downturn to become more pronounced starting next year. A financial industry official said, "Each financial company needs to strengthen liquidity risk management, and supervisory authorities should also check capital increases of each financial company and consider activating bond purchase programs in emergencies."

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