Amid market downturns, such as a surge in unsold sales… Potential spread of a ‘liquidity crisis’
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Recent surge in non-banking PF… At the end of last year, the risk exposure of the second financial sector was more than 200 trillion
‘Ignite’ at the weakest link… Dangerous workplaces as well as excellent construction companies worry about ‘sparks’
Ssangyong Construction 530% Taeyoung Construction 499%… Some construction companies’ debt ratios are too high
Concerns about insolvency in real estate project financing (PF) are growing again as uncertainty in the financial market rises due to the bankruptcy of Silicon Valley Bank (SVB) in the United States. This is because there is a possibility that the liquidity crisis will spread in a situation where the real estate market is slow, such as the recent surge in unsold units.
According to data from the Bank of Korea and the Korea Finance Institute on the 19th, real estate PFs of non-bank financial institutions such as credit companies and securities companies have increased sharply recently, pointing to a high risk of insolvency. This is because high-risk workplaces and small and medium-sized construction companies, as well as normal workplaces and first-class construction companies that have nothing to do with business performance, could experience refinancing risks if the a stressed financial market and liquidity crisis. strikes in a situation where high interest rates continue and the real estate market itself is in recession.
Kim Ji-san, head of the research center at Kiwoom Securities, said, “If problems arise from the SVB crisis, they are likely to appear in small and medium-sized construction companies.” ” he said.
As of the end of last year, it is estimated that the financial risk exposure of real estate PF in the secondary financial sector has exceeded 200 trillion won. The Korea Finance Institute calculated that the amount of non-bank real estate PF financial risk exposure was 191.7 trillion won at the end of June last year, more than double the amount at the end of 2018 (94.5 trillion won). Real estate PF risk exposure includes loans, payment guarantees, and guaranteed securities. Shin Yong-sang, a senior researcher at the Korea Institute of Finance, said, “If the financial market fluctuates due to the recent problems with foreign banks such as SVB and Credit Suisse, and uncertainty affects the Korean financial market, problems arise in surrounding real estate liabilities, such as real estate PF and home debt, which are weak links. It can happen,” he said.
In addition, according to BOK statistics, in June last year, the volume of PF loans to high-risk workplaces with high concerns about unsold sales was 17.2 trillion won, and the loans to workplaces other than apartments with relatively low liquidity o 55.7 trillion of collateral was earned, which has been increasing continuously since 2019. has increased to In particular, the proportion of non-bank financial institutions such as savings banks and securities companies is high, so the possibility of insolvency appears high. The Bank of Korea in its financial stability report analyzed that “banks have been passive in handling PF loans since the PF loan default between 2011 and 2013, while non-banks have significantly increased PF loans to diversify their businesses and improve profitability.”
The number of unsold homes across the country declined to the point of recording the highest number in 10 years and two months, with 75,359 units in January. Reflecting such market conditions, Korea Credit Ratings issued an unfavorable outlook for industries such as savings banks, securities, and real estate trusts on the 16th. Savings banks decided to intensively monitor places where the ratio of bridge loans and PF real estate to equity capital exceeds 100% each or the combined standard exceeds 200%. The Han Shinpyeong also mentioned about securities companies, “If the soundness of real estate financing deteriorates, there is a high possibility that capital adequacy and liquidity risks will increase.”
The financial burden of some construction companies is also increasing. Korea Ratings pointed out that Lotte E&C’s consolidated debt ratio was 171.4% as of the end of September last year, making it difficult to reduce the refinancing risk even with liquidity support from group affiliates. In the case of Ssangyong E&C, the debt ratio is 530.1%, and it is believed that the financial burden may increase unless the ability to generate profit recovers. Taeyoung Construction also noted that the debt ratio rose to 499%, and Hanshin Public Corporation’s debt ratio (consolidated basis) was 224.2%, indicating an excessive financial burden.
