PF Contingent Liabilities 0%... Hanyang Securities' Conservative Management Policy Pays Off

Real Estate PF Bridge Loan and Equity Investment Ratio 3.2%
Low-Risk Asset Ratio 46.5%→74.2%, Watchlist and Below Loans 0%

Hanyang Securities has reduced the proportion of real estate project financing (PF) bridge loans to the lowest level in the securities industry and eliminated contingent liabilities. Amid growing concerns about real estate PF defaults in the securities industry, Hanyang Securities' conservative management approach has been praised for its effectiveness.

According to securities firms and credit rating agencies on the 14th, as of this month, Hanyang Securities' contingent liabilities related to real estate PF were recorded at 0%. The proportion of bridge loans and equity in the real estate alternative investment sector was 3.2%.

According to the credit rating industry, as of the first quarter of this year, Hanyang Securities' PF exposure (risk exposure) totaled 135 billion KRW, which is about 21% of its equity capital. It consisted of 36.3 billion KRW in debt guarantees, 95.7 billion KRW in private bonds, and 3 billion KRW in funds. As of this month, the PF exposure size has decreased to approximately 100 billion KRW. This contrasts with the total real estate PF exposure of all securities firms, which amounts to 28.4 trillion KRW, or 39.0% of equity capital.

All of Hanyang Securities' contingent liabilities are liquidity support. Liquidity support refers to a kind of 'purchase commitment' to take over if problems arise when refinancing PF asset-backed commercial paper (ABCP). 'Payment guarantees,' which mean repaying PF ABCP on behalf of others if problems occur, are only possible for securities firms that have received over-the-counter derivatives approval. Since Hanyang Securities has not obtained this approval, it has conducted PF business through liquidity support.

The scale of Hanyang Securities' contingent liabilities (liquidity support) was 149.3 billion KRW in 2019, 55 billion KRW in 2020, 76.8 billion KRW in 2021, and 106.5 billion KRW in 2022. After reducing it to 95.9 billion KRW in the first quarter of this year, the company has continued to adjust its position. A Hanyang Securities official said, "Currently, there are no real estate-related contingent liabilities due to the termination of purchase commitments," adding, "We have maintained and managed it at the industry's lowest level by proactively reflecting the downturn in the real estate market."

Regarding bridge loans, the proportion was also low at 15% in the first quarter of this year. However, the subordinated loan ratio reached 90%, raising concerns about high risk in terms of repayment priority. Therefore, the company explained that it has reduced risk by liquidating its bridge loan positions.

The proportion of low-risk assets such as government bonds, credit loans, and cash also increased significantly. The ratio of low-risk assets rose from 46.5% at the end of last year to 74.2% in the first quarter of this year. Notably, there were no loans classified as 'special mention or below.' Since 2019, the proportion of special mention or below loans has been maintained at 0%.

This reflects the determination of President Lim Jae-taek. In his New Year's address this year, President Lim emphasized △surpassing 500 billion KRW in equity capital △qualitative growth △and advancing as a prestigious securities firm. He also stated plans to strengthen the competitiveness of the trading and PF sectors, which have served as cash cows, alongside expanding sales.

However, the large proportion of loans in the form of private bonds requires attention. Hanyang Securities has conducted its PF business mainly through purchase loan receivables (private bonds). As of the first quarter, the size of PF private bonds was 89.5 billion KRW, more than twice the amount of debt guarantees (36.3 billion KRW).

A representative from Korea Ratings said, "In the case of Hanyang Securities, it directly lends private bonds issued by special purpose companies (SPCs) for PF business, so there is little incentive for payment guarantees, resulting in relatively low contingent liabilities," adding, "Since Hanyang Securities recognizes losses on PF private bonds using the fair value evaluation method, the soundness can be more specifically confirmed at the end of the year."

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