Goddess Association: "Capital Companies Have Sufficient Ability to Absorb Real Estate PF Losses"

A red light is on at the traffic signal in front of the Taeyoung Construction headquarters in Yeouido, Seoul.

In response to concerns that the fallout from Taeyoung Construction's workout (corporate financial restructuring) application might spread worries about real estate project financing (PF) defaults to the capital industry, the Credit Finance Association stated on the 4th that the loss absorption capacity is sufficient.

The Credit Finance Association said, "It is true that the recent capital real estate PF market is facing difficult business conditions such as high interest rates and delayed recovery of the real estate market," but added, "Considering the capital industry's loss absorption capacity and financial soundness, it is at a level that can be sufficiently endured." The total capital of domestic capital companies steadily increased from 30.7 trillion won at the end of 2022 to 33.2 trillion won at the end of September last year, indicating ample capital capacity.

They also explained that financial soundness is improving. As of the end of September last year, the provision coverage ratio against non-performing loans (NPLs) of capital companies was 125.2%. The ratio of real estate PF loans to total assets decreased from 12.7% at the end of 2022 to 11.2% at the end of September last year.

The Credit Finance Association also expressed the view that the increase in the ratio of watchlist substandard loans of capital companies is not a major problem. Watchlist substandard loans refer to loans with delinquency periods of less than three months, indicating potential default risk. As of the end of September last year, the watchlist substandard loan ratio for real estate PF loans of capital companies was 16.8%, up 12.4 percentage points from 6.4% at the end of 2022. The association explained, "Since the revised model regulations for real estate PF risk management by credit finance companies were implemented in September last year, stricter standards have been applied to PF loan assets than other loans," adding, "Loans that would have been considered normal under other loans are treated as watchlist, resulting in a higher watchlist substandard loan ratio."

The Credit Finance Association also stated, "Recently, the asset-backed bond market has gradually stabilized, with the spread against government bonds narrowing due to strengthened buying demand," and "Proactive efforts such as maintaining a high liquidity ratio are being made in preparation for the possibility of increased PF risk." They added, "Most capital companies handling PF are subsidiaries of holding companies, so the major shareholders' support capacity is sufficient," and "As of the end of September last year, the delinquency rate of PF loans has also seen a reduced increase due to strengthened risk management such as write-offs."

The Credit Finance Association said, "The capital industry will continue efforts to normalize through business restructuring such as PF creditor agreements and the establishment of PF normalization support funds," and "Together with financial authorities, we will actively reduce PF risk by sufficiently provisioning to strengthen loss absorption capacity and by cleaning up non-performing loans to prevent PF risk from spreading throughout the industry."

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