South Korea’s Risky Property Project Loans Fall to 15.1 Trillion Won
Loans tied to risky real estate development projects declined in the second quarter as disposals and recapitalization reduced troubled exposure, South Korea’s financial watchdog said.
South Korea’s stock of loans tied to risky real estate development projects declined during the second quarter, offering evidence that financial institutions are making progress in reducing troubled property exposure.
The Financial Supervisory Service said Tuesday that 15.1 trillion won, or about $11.3 billion, in real estate project financing loans was classified as risky at the end of June. That was down from 16.4 trillion won at the end of March, a reduction of 1.3 trillion won over three months.
The decline came through the sale of troubled assets and the recapitalization of projects, according to the watchdog. Those measures are intended to clean up projects whose financing structures or repayment prospects have weakened rather than leaving deteriorating loans unresolved on financial companies’ balance sheets.
Total exposure by financial institutions to real estate development stood at 168.8 trillion won at the end of June. Risky loans accounted for 9 percent of that amount. The comparable figures cited by the regulator were 169.8 trillion won in total exposure and a risky-loan ratio of 9.6 percent at the end of March.
Both measures therefore moved lower during the quarter: total exposure fell by 1 trillion won, while the share judged risky decreased by 0.6 percentage point. The reduction in the absolute amount of risky lending was larger than the fall in overall exposure, indicating that the cleanup was concentrated on weaker projects.
The FSS said the remaining risky project-finance loans will also be restructured. That leaves 15.1 trillion won still requiring attention even after the latest quarter’s progress.
Property project financing has remained a concern for South Korea’s financial market since a rise in soured loans began in late 2023. Regulators have worried that mounting losses at development projects could damage individual financial institutions and, if left unmanaged, weigh on broader financial stability.
The second-quarter figures point to a gradual reduction in that vulnerability rather than its elimination. Continued restructuring will determine how quickly lenders can dispose of or rehabilitate the remaining troubled projects while reducing the potential impact on the wider financial system.