No recovery expected in South Korea's real estate market...S&P warns of credit risk

On the 17th, Standard & Poor's (S&P) Global Credit Ratings released a report stating that the credit risk of Korean non-bank project finance (PF) is increasing.
Ta. He pointed out that with Tae Yeon Construction going into a workout (corporate structure improvement), there are growing concerns about the credit risk of project finance (PF) in South Korea's non-banking sector. South Korea
The real estate market is unlikely to recover meaningfully within one to two years. Kim Dae-hyun, Managing Director of S&P, reported that ``Real estate risks for Korean non-bank financial institutions are becoming a reality.''
``Given the slowdown in the real estate market and high interest rate levels, more construction companies and PF businesses will be facing financial burdens,'' the report said.
Regarding the Korean real estate market, ``it is possible that a meaningful level of recovery will be achieved within the next one to two years.''
``It seems unlikely that the government will actively stimulate the real estate market, given that housing prices, which have risen rapidly during the past few years of low interest rates, are still at a high level.'' Na
"It will be," he predicted. Furthermore, given the high level of household debt in the country, it is expected that the government will intensively control the rate of increase in household debt, making active real estate stimulus policies unlikely.
I expected it. Under these circumstances, we assessed that the credit risks of non-bank financial institutions, especially mutual savings banks, installment finance companies, credit-only financial companies, and securities companies, are increasing.
Managing Director Kim said, ``The biggest risk factor is the high exposure (amount of risk exposure) to commercial real estate development projects that are in the early stages of business.''
``Related loans account for approximately 30-50% of these real estate PF loans.'' However, ``negative credit events are emerging mainly among small non-bank financial institutions.''
"There is a possibility that there will be some damage, but the ripple effect on the financial system as a whole will not be large." On the other hand, banks and insurance companies have relatively large real estate PF exposures.
"The company generally has an appropriate level of loss absorption capacity," and assessed that the associated risks were not at a dangerous level.