Financial Services Commission Issues Management Improvement Order to Mugunghwa Trust: "Limited Possibility of Financial Market Contagion"
The financial authorities, which issued a management improvement order to Mugunghwa Trust, have judged that the possibility of the deterioration of Mugunghwa Trust spreading to other financial markets is limited.
On the 27th, Kwon Daeyoung, Secretary General of the Financial Services Commission, stated in a related briefing, "This is a normalization process occurring during the soft landing of real estate PF since the second half of 2022," adding, "It is being sufficiently managed and controlled."
Mugunghwa Trust was identified as having worsened management mainly due to excessively increasing the responsibility completion guarantee business during the real estate boom after 2020. Secretary Kwon explained, "The scale of responsibility completion, which was 67.9 billion KRW in 2019, increased to 1 trillion KRW in 2022," and added, "As the PF market became difficult, the financial burden increased, and liquidity problems occurred due to high-interest borrowing."
Among the 67 projects currently underway by Mugunghwa Trust, excluding the 90 completed projects, the affected projects are 67 (32 loan-type, 35 responsibility completion-type). For the 26 projects currently under sale, protections such as housing subscription guarantees by the Housing and Urban Guarantee Corporation (HUG) and purchase agreements by LH are applied to protect contract holders.
To protect construction companies and partner firms, payment of construction fees according to trust contracts and the activation of a rapid financial support program are in place. Currently, there are 39 primary contractors and 325 partner companies related to Mugunghwa Trust.
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The financial authorities emphasized, "The average NCR of 13 real estate trust companies excluding Mugunghwa Trust is 537.3%, which greatly exceeds the regulatory level (150%), so the possibility of contagion is low," and added, "Most are affiliated with financial holding companies or large corporations and have sufficient capacity for capital expansion."
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