Losses from Alternative Investments in ‍Overseas Real Estate Increase

As of⁢ the⁣ end‌ of⁣ March this year, domestic financial institutions had incurred losses of​ over‌ 2.5 trillion won in overseas real estate projects. The region that​ received the ⁢most alternative real ​estate investment funds​ was the United States, and by type, complex facilities⁣ accounted ‍for the largest proportion.

What⁢ is EOD?

EOD means​ to recover the ⁢money lent before maturity ⁢because the investment risk is judged to have increased. EOD⁤ occurs⁤ due to reasons such ⁣as non-payment of interest‍ or principal‍ to ⁢senior creditors or failure to meet LTV (loan-to-value⁤ ratio) conditions due to a decrease in asset value.‌ If ⁢a decision is made by senior investors to sell ​due to EOD, domestic⁤ financial institutions that invested⁢ in the middle‍ and⁤ lower tiers may suffer losses.

Impact on the Financial System

The Financial Supervisory Service viewed that the impact of ⁤investment losses on ‍the financial system will be limited, considering that overseas real estate investment ‍is less than ⁤1% of total assets and ⁣domestic⁢ financial companies have good​ capital ratios and other loss-absorbing ⁣capabilities.

Balance of⁢ Alternative Investments ⁤in Overseas Real Estate

According to the Financial Supervisory Service, as of the⁤ end⁢ of March, ⁢the balance of alternative investments ​in overseas real estate was only 0.8% of the ⁣total assets of the financial sector, which amounted to⁢ KRW ‌6,985.5 trillion.

Industry Breakdown

By industry, insurance took ​the largest share at 31.3 trillion won, or 57%. This was followed by ⁤banks ​at⁢ 12 trillion won (21.0%), securities at 7.8 trillion won (13.8%), mutual finance at 3.7 trillion won (6.4%), specialized credit finance at 2.1 trillion​ won (3.7%), and savings⁣ banks at 100 billion won (0.1%).

Regional Breakdown

By ‌region, North America was ⁢the largest ‌at KRW 36.1 trillion (63.4%), followed by Europe at KRW 10.2 trillion‌ (17.8%) and Asia at KRW 3.9 trillion (6.9%). Investment in other regions such as Oceania, South America, and Africa and multiple regions amounted to KRW 6.7 trillion (11.8%).

Maturity Breakdown

By maturity, it is distributed‍ as KRW 6.8 trillion (11.9%) ⁣by 2024, ‍KRW 18.2​ trillion​ (32%) in‌ 2025-2026, KRW 13.7 trillion (24%) in 2027-2028, and KRW 5.4 trillion ‌(9.5%)⁤ in 2029-2030. The‌ amount maturing after ⁣2031 is KRW ⁤12.9 trillion (22.6%).

Alternative Investments

Alternative⁤ investments are ​investments ​in‍ other than ⁣traditional investment products such⁤ as stocks or bonds. Since the mid-2010s,‍ there has been ​a ​global boom in⁤ alternative investment‌ in real estate⁣ in the US,⁢ Europe, and ⁣other countries, fueled by the low interest rate environment and abundant liquidity.