"15% Additional Delinquency in Bridge Loans in the First Half of Next Year... PF Restructuring Will Take Time"

Many Local Branches Make Securing Business Feasibility Difficult... Time Required

By the first half of next year, it is projected that an additional 15% or so of defaults based on outstanding balances may occur in the secondary financial sector's bridge loans related to domestic real estate project financing (PF) restructuring. While PF restructuring is expected to proceed within a predictable range, the overall resolution process is anticipated to take a considerable amount of time.

Taeyoung Construction, which is experiencing a liquidity crisis due to real estate project financing (PF), has applied for workout, and on the 5th, the construction site of Taeyoung Construction's Seongsu-dong development project located in Seongdong-gu, Seoul, has come to a halt. Photo by Jinhyung Kang aymsdream@

According to the financial sector on the 20th, Korea Credit Rating (KCR) stated this during an online media briefing co-hosted with the global credit rating agency Moody's the previous afternoon, under the theme "How will PF market restructuring and changes in the interest rate environment affect Korean non-bank financial institutions?"

According to KCR, out of the total PF exposure (risk exposure) of 217 trillion KRW across all financial sectors, about 10%, approximately 21 trillion KRW, is classified as requiring caution or at risk of default in terms of credit quality and is subject to restructuring. Notably, 95.2% of this amount, or 20 trillion KRW, originated from mutual finance, savings banks, securities firms, and specialized credit finance companies.

Looking at the scale of those classified as caution or below in credit quality, mutual finance institutions accounted for the largest amount at 980 billion KRW. This was followed by ▲savings banks with 460 billion KRW ▲securities firms with 330 billion KRW ▲specialized credit finance companies with 240 billion KRW. However, in terms of the proportion of caution or below defaults relative to total loans, savings banks had the highest at 27.7%, followed by ▲mutual finance at 17.9% ▲securities at 12.5% ▲specialized credit finance companies at 8.7%.

KCR expects that while PF restructuring itself is likely to proceed smoothly, it will take a significant amount of time. This is because Korea's annual non-performing loan (NPL) market size remains at around 4 trillion KRW. Wi Ji-won, head of KCR's Financial/Structured Evaluation Division, stated, "Even considering discounts, 21 trillion KRW is not a small amount," and added, "Moreover, most of the restructuring targets are local land, making it difficult to secure business viability."

KCR also forecasted that with the expansion of PF evaluation targets, additional defaults will occur in bridge loans by the first half of next year. They indicated that 20-30% of bridge loans currently classified as sound or normal in credit quality could transition to caution or below. This corresponds to about 12-16% based on outstanding balances.

Specifically, the transition rate of bridge loans classified as sound or normal to caution or below is predicted to be highest for securities firms at 29.7%, followed by savings banks at 20.5%, and specialized credit finance companies (capital companies) at 20.1%. Accordingly, the proportion of caution or below bridge loans one year later is expected to rise from 42.2% to 54.0% for savings banks, an increase of 11.8 percentage points; from 31.7% to 44.9% for securities firms, an increase of 13.2 percentage points; and from 19.6% to 35.7% for capital companies, an increase of 16.1 percentage points.

Wi said, "Loss recognition on bridge loans is expected to be largely completed by the first half of next year, which means the burden will remain until then," adding, "Small and medium-sized securities firms or A-grade capital companies with income structures concentrated in real estate will face significant burdens."

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