The Real Estate Delinquency Rate in the Financial Sector Doubled to 2.7% in One Year

Photo = Yonhap News

Photo = Yonhap News

In the financial sector, the delinquency rate of real estate project finance (PF) loans has doubled in a year. Savings banks, which had a deficit of about 500 billion won last year, saw their default rate 2.5 times to about 7%.

According to the Financial Services Commission and Financial Supervisory Service 22, the balance of real estate PF loans in the financial sector was 135.6 trillion won as of the end of last year. It is 1.4 trillion won more than the end of September, and 5.3 trillion won from the end of 2022.

In the financial sector, the delinquency rate of real estate PF loans was estimated at 2.70%, an increase of 0.28 percentage points (2.42%) compared to the end of September. It increased more than twice compared to 1.19% at the end of last year. As of the end of the year, the delinquency rate dropped from 0.55% in 2020 to 0.37% in 2021 and continued to rise from 2022. As the construction industry slows due to high interest rates and rising construction costs, the number of PF firms unable to repay on time is increasing.

By industry, savings banks recorded 6.94 percent. That was a 4.89% increase from 2.05% a year ago, the largest increase among all industries. The delinquency rate of PF loans in the credit sector has also doubled from 2.2% at the end of 2022 to 4.65% at the end of last year.

On a year-over-year basis, breach rates across all industries rose last year, but some sectors, such as securities and mutual funds, declined in the third and fourth quarters. The default rate of PF loans in the securities sector peaked at 17.28% at the end of the second quarter, then declined to 13.85% at the end of the third quarter and 13.73% at the end of the fourth quarter. In the case of the securities industry, the Financial Conduct Authority explained that an increase in the total balance of loans, rather than a decrease in delinquency, led to a decrease in the delinquency rate. The PF balance of the securities industry increased from KRW 5.5 trillion to KRW 6.3 trillion and KRW 7.8 trillion during this period.

Financial authorities have emphasized that delinquency rates and unsold housing rates are stable compared to the past crisis. As of the end of 2012, when the so-called savings bank crisis occurred, the average level of violation in the financial sector reached 13.62%. The number of unsold units currently stands at 62,000 units, down from 166,000 units in 2009 during the global financial crisis.

However, financial authorities stated that it is difficult to predict how long the upward trend in PF loan overdue rates will continue. Kim Byeong-chil, deputy director of the Financial Supervision Service, said: “Once the PF's soft landing normalization plan begins to materialize in earnest, the delinquency rate will be able to stabilize towards a decline.” Financial authorities are promoting the review of various systems such as business viability assessment standards and lender agreements to encourage liquidation of PF enterprises that may be insolvent.

Reporter Kang Hyeon-woo hkang@hankyung.com

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