Nashinpyung, Credit Ratings Pressure Rises for 5 Companies Including DB, Meritz, and Shinhan Capital

"No noticeable moves to counter downward pressure on credit ratings"
Real estate trust 'scenario test'... "Estimated maximum final loss scale of 2.2 trillion won"

Nice Credit Rating is strengthening monitoring of five companies: DB Capital, Meritz Capital, Shinhan Capital, Korea Capital, and Korea Investment Capital. These five capital companies have real estate project financing (PF) exceeding 100% of their equity capital and have a watchlist non-performing loan ratio exceeding 10%, indicating a high possibility of further deterioration in soundness.

On the 26th, Nice Credit Rating announced this at the '2024 Credit Seminar' held at the Korea Exchange in Yeouido. Despite the recent strengthening of PF feasibility evaluation standards by financial authorities, the overall performance of the capital industry is favorable, but not all capital companies are in good condition. Companies with large PF exposure and risk levels are facing increased downward pressure on their credit ratings.

In particular, for the five companies selected as key monitoring targets, the adjusted return on assets (ROA) after loan loss provisions has fallen to around 0%, and the ratio of non-performing loans is three times higher than that of other capital companies, indicating a significant deterioration in soundness.

Senior Researcher Kim Sung-jin pointed out, "The level of loan loss provisions is relatively low, indicating a high possibility of additional losses." He added, "Meritz Capital and Korea Investment Capital are working to strengthen capital buffers and improve asset soundness through rights offerings, but the other companies show no noticeable efforts to respond to downward credit pressure."

Additionally, among the 14 real estate trust companies, Nice Credit Rating conducted scenario tests on 8 companies and projected that the trust account balances will increase from 3.6 trillion KRW in June this year to between 3.8 trillion and 5 trillion KRW by June next year. The estimated final losses are expected to range from a minimum of 1.3 trillion KRW to a maximum of 2.2 trillion KRW.

The scenario tests were conducted on 8 of the 14 real estate trust companies evaluated by Nice Credit Rating, divided into four financial affiliates (Daeshin Asset Trust, Shinhan Asset Trust, Woori Asset Trust, KB Real Estate Trust) and four non-financial affiliates (Daehan Land Trust, Koramco Asset Trust, Korea Trust, Korea Asset Trust).

Senior Researcher Yoon Ki-hyun explained, "Considering the actual risk and expected loss size of land trust exposure, loan loss provisions, and equity capital comprehensively, the expected loss size relative to loss absorption capacity is anticipated to be larger for financial affiliate real estate trust companies than for non-financial affiliate real estate trust companies." He added, "If losses related to land trusts materialize before the completion of loan loss provisions and reserve liabilities, each real estate trust company will need to respond to the shortfall through equity capital and other means beyond the already provisioned loan loss reserves. Taking this into account, the loss absorption capacity of non-financial affiliate real estate trust companies is expected to be superior to that of financial affiliate real estate trust companies."

He continued, "The trust account balances of subordinated completion guarantee-type land trusts are expected to incur greater losses than those of borrowing-type trusts." He concluded, "We plan to conduct credit evaluations comprehensively considering changes in the profitability of individual real estate trust companies and their corresponding self-help efforts."

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