Billions at Risk: Savings Banks and Real Estate PF Face Devastating Losses of Up to 1.7 Trillion Won
File photo of real estate project financing businesses.
Savings Bank Licenses May Incur Additional Losses of Up to 1.7 Trillion Won
As auctions of insolvent real estate project financing businesses gain momentum, NICE Credit Rating has predicted that the final loss related to savings banks’ real estate project financing (PF) could range between 2.6 and 3.9 trillion won.
This forecast is lower than the initial estimate of up to 4.8 trillion won announced in April. However, it exceeds the savings bank license’s bad debt reserves and reserve funds, which stood at 2.2 trillion won as of the end of June. Consequently, savings bank licenses will need to accumulate an additional reserve fund of at least 400 billion won and up to 1.7 trillion won in the future.
In response to the growing concerns, the Financial Supervisory Service has subdivided the criteria for evaluating the business viability of PF businesses into four levels: good, average, significant, and risk of insolvency. Businesses classified as “significant” or “risk of insolvency” have been ordered to pursue restructuring promptly.
Notably, the proportion of businesses classified as ‘significant’ and ‘at risk of insolvency’ in the savings bank industry stands at 22.4%, surpassing that of securities companies at 12.5% and capital companies at 8.7%.