[PF Soft Landing] Authorities Provide Financial Firms PF Support Incentives Through Non-Action Opinion Letter

Relaxation of Business Feasibility and Soundness Evaluation Criteria
Support Measures for Savings Banks, Insurance, and Securities Companies Also Prepared

The financial authorities have significantly improved the business feasibility evaluation for distressed real estate project financing (PF) sites to ensure a smooth landing of the PF market following the Taeyoung Construction workout (corporate financial restructuring). For financial institutions that have made efforts in this regard, incentive measures such as relaxing business feasibility evaluation criteria when supplying new funds have also been prepared.

On the 13th, the Financial Services Commission announced the "Incentive Provision Plan for Financial Companies to Support PF Normalization" containing these details. The measure, which applies broadly across the financial industry, states that when new funds are provided to distressed sites, the financial authorities will reflect this in the PF business feasibility evaluation or issue a non-action opinion letter. The application period is until December 31 of this year. A non-action opinion letter is a document in which the Financial Supervisory Service confirms that it will not take future sanctions or other actions based on relevant laws for transactions conducted by financial companies.

First, for real estate PF sites restructured by supporting new funds, it is allowed to evaluate business feasibility considering the improved feasibility. Previously, even if new funds were supplied and business feasibility could improve, there was no basis to upgrade the evaluation. Also, many financial institutions hesitated to handle new loans due to the burden of provisioning when supplying new funds. Accordingly, the authorities plan to reflect this in the PF business feasibility evaluation scheduled for June this year.

The financial authorities plan to temporarily allow new funds with priority repayment rights provided to sites undergoing restructuring to be classified as "normal" in the soundness evaluation by separating them from the borrower's existing claims and to issue non-action opinion letters until December 31 this year. Previously, when new funds were supplied to distressed sites, they were classified as "special mention or below" based on the borrower's total claim soundness classification. The authorities explained that financial institutions hesitated to provide new funds due to this burden. Exemptions from liability will also be granted to financial institution employees for losses incurred during the sale of PF bonds, syndicated loans, and the restructuring or liquidation of sites.

Kwon Dae-young, Secretary General of the Financial Services Commission, is announcing the future policy direction for an orderly landing of real estate PF at the Government Seoul Office in Jongno-gu, Seoul on the 13th. Photo by Jo Yong-jun jun21@

Incentive plans by sector have also been prepared. To support new operator funding for PF site restructuring, if certain conditions are met, the application of the mutual finance joint loan handling standards will be temporarily excluded. Existing major creditors sometimes face delays in selling distressed sites due to the application of mutual finance joint loan handling standards when handling balance payment loans. A balance payment loan refers to a loan where the successful bidder at a public or private auction borrows the balance from the financial institution secured by the real estate. Accordingly, for sites sold at a reduced price compared to the total loan amount (site basis), if the borrower has a loan scale within the total loan amount held by the existing joint loan major creditor and has raised at least 10% of the bid price with their own capital, and if new loans are taken up to twice for the same site, the joint loan standards will not apply. A notice containing these details was sent to each cooperative by the National Mutual Savings Bank Association on the 30th of last month.

In the case of savings banks, incentives such as easing the securities holding limit for PF loans and relaxing credit provision limits within the business area are provided. Even if savings banks exceed the securities holding limit due to investments in distressed asset resolution funds, they will not be penalized. During the process of resolving distressed assets, the credit provision amount to individuals and small and medium enterprises within the business area must be maintained at a certain ratio of total loans (50% in the metropolitan area, 40% in non-metropolitan areas), but exceeding this by up to 5 percentage points is allowed.

Insurance companies receive reduced credit risk coefficients (K-ICS) when inputting exposure to support PF normalization and are excluded from the real estate concentration risk measurement target. Also, repurchase agreement (RP) sales before and after loans to PF sites are temporarily recognized as liquidity-purpose borrowings.

The financial authorities will temporarily ease the risk weight for domestic residential real estate loans newly supplied by comprehensive financial investment business operators (comprehensive securities firms) to the level of domestic non-residential and overseas real estate loans (60%). As of the end of March this year, a temporary special case will be resumed to apply the eased NCR (Net Capital Ratio) risk weight (32%) when converting real estate debt guarantees directly into loans.

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