SEOUL—The Financial Supervisory Service (FSS) of South Korea has pledged to implement measures to prevent the spillover of real estate project financing (PF) risks into the broader financial markets, as stated by the FSS governor Lee Bok-hyun on Monday. Lee emphasized the importance of persuading financial institutions to proactively manage credit risks associated with real estate PF loans, describing these risks as a potential "detonator" for the South Korean economy.
According to Yonhap News Agency, the regulator is focused on encouraging financial companies to enhance their loss-absorption capacities in relation to PF loans. Lee also issued a warning regarding severe consequences for financial institutions that fail to adequately address risks or neglect their responsibilities. This announcement comes in the wake of increased concerns over real estate project financing, particularly after the significant builder Taeyoung Engineering and Construction Co. applied for a debt restructuring program late last year. The FSS highlighted a concerning rise in the delinquency rate on PF loans, which more than doubled to 2.42 percent by the end of September, up from 1.19 percent at the end of 2022.