Saemaeul Geumgo Managed Land Trust Loans Increase by 16 Trillion Won in 4 Years

2019: 169.5 Billion KRW → 16 Trillion KRW in June This Year

The balance of Saemaeul Geumgo's managed land trust loans has increased by 16 trillion won over four years.

According to the 'Saemaeul Geumgo Managed Land Trust Project Loan Status' from the Ministry of the Interior and Safety, obtained by Asia Economy from the office of Hong Seong-guk, a member of the Democratic Party of Korea, the loan balance as of the end of June this year was recorded at 16.3481 trillion won. This is approximately 96.4 times the amount at the end of 2019 (169.5 billion won).

Managed land trusts refer to cases where the trust company acts as the project implementer, but the project funds are provided by the entruster or the construction company. Loans related to this are broadly classified in the industry as real estate project financing (PF) loans, along with loans for land acquisition costs or bridge loans.

The balance of Saemaeul Geumgo's managed land trust loans increased explosively from 2020, a boom period for PF, through last year. The loan balance was 2.8795 trillion won in 2020, increased to 9.0992 trillion won in 2021, and reached 15.5079 trillion won last year. However, as the real estate market continues to stagnate and delinquent loans increase, concerns have been raised that Saemaeul Geumgo may also face burdens. In fact, the delinquency rate, which was negligible at 0.07% in 2021, rose to 1.14% at the end of March, then fell back to 0.75% as of the end of June.

Regarding this, a representative from the Saemaeul Geumgo Central Association said, "There are almost no new loans being issued this year, and unlike real estate joint loans conducted among Saemaeul Geumgo branches, managed land trust loans are all directly reviewed by the central association, so delinquency rate management is being maintained." The industry also views Saemaeul Geumgo's real estate-related loans as relatively stable because they are responsible completion-type managed land trusts rather than general real estate PF loans.

The responsible completion-type managed land trust refers to a system where the trust company guarantees the responsible completion of the project site to the lenders, and based on this, the lenders execute the loans. If construction is halted or the construction company collapses, the trust company compensates the lenders for losses, which reduces risk for financial institutions. Especially in Saemaeul Geumgo's case, since most projects have senior loans and the loan-to-value ratio (LTV) is managed at around 60%, even if the project fails, it is highly likely that the principal can be recovered through public auction.

However, concerns have been raised that this stability could be compromised if the real estate market downturn continues. Recently, due to the sluggish real estate market and rising construction material prices and labor costs, disputes among stakeholders and construction company insolvencies have occurred. Particularly, responsible completion-type managed land trust projects often involve small and medium-sized construction companies with low credit ratings. In fact, the soundness of trust companies is also deteriorating. According to a report released by NICE Credit Rating in July, as of the end of March, the amount of non-performing assets of six real estate trust companies with credit ratings was 1.7035 trillion won, accounting for 44.3%. This represents increases of 21.99% and 2.8 percentage points, respectively, compared to the end of the previous year.

Moreover, real estate PF loans jointly participated in by Saemaeul Geumgo also require continuous attention. According to an analysis report by Korea Credit Rating, the total real estate PF exposure held by 26 securities companies as of March this year was 28.4 trillion won, of which Saemaeul Geumgo's jointly participated real estate PF exposure amounted to 2.7 trillion won, about 10% of the total. In particular, Saemaeul Geumgo had a high participation rate as a joint lender in the real estate PF exposure of small and medium-sized securities companies.

Regarding this, Representative Hong said, "Saemaeul Geumgo shows a relatively aggressive investment tendency as it has a high PF participation rate in small and medium-sized securities companies, projects located in provincial areas, and small-scale officetel non-residential projects," adding, "While multi-angle exposure monitoring is necessary, close attention from authorities is required as it is a blind spot in financial supervision."

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