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Nonbanking firms' real estate financing risks loom large amid sluggish housing market

All News 11:08 March 26, 2023

SEOUL, March 26 (Yonhap) -- The loan exposure of nonbanking financial companies to real estate project financing (PF) has spiked to an alarming level in recent years, posing potential credit risks amid a decline in the housing market, industry data showed Sunday.

The volume of exposure by insurance companies, securities firms, credit card companies and savings banks had stood at 115.5 trillion won (US$88.8 billion) as of the end of September last year, according to data from the Bank of Korea.

That includes 91.2 trillion won in loans and 24.3 trillion won in loan guarantees.

Provided that the average exposure level was 100 in 2017, the current exposure level in financing and credit card companies reached 432.6, followed by savings banks at 249.8, insurers at 204.8 and securities firms at 167.

"The exposure in almost all the nonbanking sector is practically at a record-high level," a BOK official said.

The rise in loan delinquency ratios in the nonbanking sector is also adding to the woes.

The delinquency ratio in real estate PF loans extended by securities firms jumped to 8.2 percent in September last year, compared with 3.7 percent at the end of 2021.

The corresponding figures for credit card companies and savings banks also rose to 1.1 percent and 2.4 percent, respectively, from 0.5 percent and 1.2 percent.

The BOK called for closer attention toward the potential insolvency risks related to real estate PFs in the nonbanking sector, advising market players to take steps to minimize uncertainties and beef up financial soundness.

Financial Supervisory Service Gov. Lee Bok-hyun said last week the financial authorities are working to prevent such risks from becoming a "trigger point" for certain construction companies or others in related industries.

"We're making efforts to spread the risks so that we can prevent an excess in the loan extensions in one particular sector, or risks from happening all at once," Lee told reporters Friday.

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