[Real Estate PF Crisis] Overall Financial Sector Delinquency Rate Rises by 0.28%p... Savings Banks Surge by 1.38%p

At the end of last year, the delinquency rate on real estate project financing (PF) loans in the domestic financial sector continued to rise, increasing by 0.28 percentage points compared to the previous quarter. In particular, the delinquency rate in the savings bank sector was found to have increased by as much as 1.38 percentage points.

View of Yeouido apartments from the 63 Building observatory. Photo by Hyunmin Kim kimhyun81@

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According to the "Status of Real Estate PF Loans as of the End of December 2023" released by the Financial Services Commission on the 22nd, the total outstanding balance of real estate PF loans across all financial sectors at the end of last year was 135.6 trillion won, an increase of 1.4 trillion won from the previous quarter, and the delinquency rate rose by 0.28 percentage points to 2.70%.

Looking at the PF loan balances by sector, banks and securities firms showed an increase, while insurance companies, specialized credit finance companies, and mutual finance showed a decrease. The PF loan balances of banks and securities firms increased by 1.8 trillion won and 1.5 trillion won, respectively, reaching 46.1 trillion won and 7.8 trillion won. On the other hand, insurance companies decreased by 1.3 trillion won to 42 trillion won, specialized credit finance companies fell by 200 billion won to 25.8 trillion won, and mutual finance decreased by 300 billion won to 4.4 trillion won.

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The delinquency rates also showed differences by sector. Savings banks recorded the largest increase, rising by 1.38 percentage points to 6.94%. This was followed by banks, which increased by 0.35 percentage points to 0.35%, and credit card companies, which rose by 0.21 percentage points to 4.65%. Mutual finance decreased by 1.06 percentage points to 3.12%, securities firms fell by 0.11 percentage points to 13.73%, and insurance companies dropped by 0.09 percentage points to 1.02%.

The financial authorities explained that although there is a slight upward trend in the delinquency rate, the overall situation remains stable. The quarterly increase in delinquency rates is also stable compared to the fourth quarter of 2022 (0.33 percentage points) and the first quarter of last year (0.82 percentage points), and indicators such as delinquency rates and unsold properties remain stable compared to historical peaks.

The Financial Services Commission stated, "Due to previous measures to strengthen soundness, the provision coverage ratio against PF non-performing loans has reached 108.9%, indicating sufficient loss absorption and risk management capabilities by financial companies." It added, "The authorities are preparing and implementing various policy measures to stabilize the PF market." Regarding the savings banks, where the delinquency rate surged by more than 1 percentage point, it was further explained that "the capital adequacy ratio of savings banks was 14.35% as of the end of last year, significantly exceeding the regulatory ratio (7-8%), thus maintaining stability and keeping risks from PF loans at a manageable level."

Accordingly, the authorities plan to continuously promote a smooth landing of the PF market by supplying funds such as business guarantees to viable projects and encouraging restructuring for projects lacking feasibility. A Financial Services Commission official said, "We will continue close monitoring of market conditions to prevent PF risks from spreading throughout the system," and added, "We will also make every effort to enhance the loss absorption capacity of financial sectors by inducing sufficient provisions corresponding to the risk of insolvency."

However, since the figures announced this time are based on the end of last year, before the full-scale restructuring of real estate PF began, there is a possibility that defaults will increase and delinquency rates will rise as time goes on this year. Professor Kang Sung-jin of Korea University’s Department of Economics pointed out, "Even if the base interest rate falls in the second half of the year and the overall economy improves, the impact on real estate PF will be limited. Due to the burden of accumulated debt, it is difficult to expect an improvement in the real estate market within the year. As a result, the delinquency rate in the financial sector is likely to continue rising."

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