Overseas Real Estate 'Exposure'... Financial Groups Strengthening Response Capabilities

5 Major Financial Groups Invest 10.4 Trillion in Overseas Real Estate...1 Trillion Valuation Loss
Strengthening Monitoring, Organizing Reporting and Management Systems, Issuing New Capital Securities

As the overseas commercial real estate market slows down, raising red flags over the soundness of investments and loans, the financial sector is strengthening its crisis response capabilities by enhancing internal monitoring, reorganizing reporting and management systems, and setting aside reserves. Major financial holding companies are actively working to improve soundness, including issuing new hybrid capital securities consecutively to improve capital ratios under the Bank for International Settlements (BIS) standards.

According to the financial sector on the 21st, the five major financial groups (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) have made 782 overseas real estate investments using their own capital, with a total principal amounting to 20.3868 trillion won. Excluding loan receivables, the number of investment cases in securities and funds was 512, with a principal amount of 10.4446 trillion won; however, the rate of return recorded -10.53%, shrinking the current valuation to 9.3444 trillion won. This represents an evaluation loss exceeding 1 trillion won.

In particular, real estate in the U.S. and Canada, the epicenter of the crisis, accounted for 11.4 trillion won, representing 55.9% of the total exposure of 20.4 trillion won across the financial sector. By industry, banks affiliated with the five major financial groups had the largest exposure at 7.5333 trillion won, followed by securities firms (3.5839 trillion won), life insurance companies (2.7674 trillion won), and non-life insurance companies (1.687 trillion won).

As the overseas real estate market tightens, major financial groups are taking multifaceted measures to secure soundness. Financial authorities have already begun focused monitoring of domestic financial companies’ overseas real estate investments. In particular, the Financial Supervisory Service is separately reviewing a list of overseas commercial real estate investments where domestic financial institutions have exposure.

Among the five major financial groups, Hana Financial, which has the highest evaluation loss rate at 12.22%, has in principle banned new real estate transactions in the U.S. and Europe. While accumulating loan loss provisions related to high-risk overseas real estate, it has also established dedicated post-management departments in each affiliate to respond. Hana Financial initially planned to issue 270 billion won worth of hybrid securities but increased the amount to 400 billion won after demand forecasting. A Hana Financial official stated, “We have established an IB Solutions Headquarters at Hana Securities and plan to operate a task force (TF) for soundness improvement at Hana Capital.”

KB Financial has reorganized its management system centered on the CEO. KB Financial’s average loss rate is 11.07%, the second highest after Hana Financial. KB Financial also plans to issue 270 billion won worth of amortizing contingent convertible bonds to raise its BIS ratio. A KB Financial official said, “We have strengthened communication channels among the BIZ, screening, and risk departments and reorganized the management system under the leadership of affiliate CEOs. KB Kookmin Bank is building an IB asset management system to manage overseas alternative investments.”

Next, NH Nonghyup Financial (loss rate 10.73%) plans to seek exit strategies such as additional investments, refinancing, and asset sales by assessing the viability of each project. It is also reviewing financial response measures to prepare for losses, including additional reserve accumulation. An NH Nonghyup Financial official mentioned, “Some loss amounts were reflected in last year’s performance.”

Shinhan Financial (loss rate 7.90%) has proactively established a monitoring system since the fourth quarter of last year through on-site inspections and audits. It is also working on segmenting limit management standards while reviewing risk assessment criteria and their basis for each affiliate. The 400 billion won hybrid capital securities issued by Shinhan Financial last month are also part of measures to respond to the overseas real estate crisis.

A Shinhan Financial official explained, “As of the end of last year, Shinhan Financial’s recognized loss on overseas commercial real estate was about 130 billion won, and the issuance of hybrid capital securities was a measure taken to secure overall soundness, including overseas real estate defaults. We are proactively establishing and responding with a monitoring system.”

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