Savings Bank Real Estate PF Loss Scale, Projected at 2.6 Trillion to 3.9 Trillion Won

Lee Jeong-hyeon, a ‌researcher at NICE⁤ Investors Service (NAIS), said in a report⁣ titled “How Far Have We Come‍ in Resolving Savings Banks’ Real Estate PF Bad Debt?” on the 21st, “The ⁣final scale of losses related to savings banks’ real estate PFs is likely to be between 2.6 trillion won and 3.9 trillion won.”

This means that ​savings bank licenses ‌may have to build ⁢up additional reserves of at least 400 billion won and up to 1.7 trillion won in the future. As a result, it was pointed out that negative credit rating changes (downgrades and ‘negative’ rating outlooks) for​ savings banks continued in the first half‌ of this year, following last year.

The researcher explained, ⁢”The scale of savings bank losses ‍related to real estate PF in‌ the first half of this year is limited compared to market concerns at the beginning of the year,” and “this is because the sale of insolvent businesses through public auctions has not yet⁢ begun ​in earnest.”

He added, “This ⁣is because a profit related to the sale was generated by selling PF business sites with relatively good business ‌performance⁤ at a price higher than ​the book value reflecting the reserve.”

Accordingly, he predicted that the additional losses related ⁤to real estate PFs ‌of savings banks will continue until the ‌first half of 2025. He pointed out that, “Savings banks have a ​larger proportion of ‘significant’ and ‘risk⁤ of⁤ default’ in real estate‍ PF exposure than other industries, and the related default risk is high.”

Savings Banks ‘Cautionary’ and ‘Concerning Bad Businesses’ 22.4%… Targets for Rapid Restructuring

In the case of savings bank business licenses, the proportion of ‌businesses classified as ‘significant’ and ‘at ⁤risk of insolvency’ is 22.4%,⁢ which is higher than that ‍of securities companies (12.5%) and capital companies (8.7%). In other ⁣words, one out of five ​savings bank businesses is subject to rapid restructuring.

In‌ May, ​the Financial⁤ Supervisory Service​ subdivided the criteria for​ evaluating the ⁤business viability of PF businesses from the existing three levels (good, average, and risk of worsening) to four levels (good, average, significant, and risk of insolvency), and‍ required businesses classified as “significant” or “risk of insolvency”⁢ to swiftly pursue ‌restructuring.

The researcher said, “As the auction and public offering⁢ of ‘significant’ and ‘risk of insolvency’ businesses ⁢progresses in the second⁤ half of ⁤the year, losses ⁤are likely to occur during the sales ‍process ⁣and the ⁢scale of ​losses is also expected to increase.”

He continued, “The sluggish sales rate of PF business sites continues, and the proportion of loans with maturities ‍extended more than twice⁤ is​ high, with most maturities concentrated in⁤ the first half of⁢ next year.”

In addition, ⁤among real estate PFs classified as ‘good’ and ‘average,’ the ⁤proportion of businesses whose loans mature within the first‌ half ‌of next year is as high as 81.7%.

If the sluggish sales situation continues and​ loan maturities are further extended, ‘good’ and ‘average’ businesses may be re-evaluated as ‘significant’ and ‘risk of insolvency’ businesses in the future, which could increase the ​additional loss burden on savings banks.

Exposure Size of Savings Banks Reaches ‌5.4 Trillion Won

According to Nasinpyeong, the exposure size of 14 savings banks (Nasinpyeong coverage) reached 5.4 trillion ​won ⁤as ​of the end of June this year. This is a decrease of 1.6 ​trillion won compared to 6.9 trillion won at the end of last⁣ year.

However, a total loss of 123.9 billion won occurred in the process. Most of the loss occurred ​in bridge loans.

The researcher said, “So far, an orderly reorganization is underway based on the decline in market interest rates and the guidelines of ​financial authorities,” but added, “However, the reorganization of bad debts is expected to ⁣continue at least ⁤until⁤ the ⁤first half of next year, and there is ⁢the burden of recognizing additional losses, so it will be difficult to improve⁤ the performance of savings banks in the short term.”