Overdue real estate loans at South Korea's savings banks are rising quickly as higher market interest rates compound a slump in regional property markets. With the Bank of Korea, which has raised its base rate to 3%, seen as likely to tighten further, concerns are growing that bad debt could widen further at non-bank lenders.
A review by Seoul Economic Daily of first-half disclosures from all 79 savings banks nationwide found that overdue loans tied to real estate project financing, construction and property totaled about 2.6943 trillion won as of the end of June, approaching 2.7 trillion won. That marked a 15.6% increase, or about 364 billion won, from the end of last year in just six months. Savings banks often classify loans that are effectively real estate project financing as construction or property lending, so the figures are combined and counted as real estate-related loans.
The concern is that total lending has barely moved. Real estate-related loan balances stood at 24.2159 trillion won at the end of June, up 0.08% from the end of last year. That means asset quality deteriorated sharply over a short period.
Market watchers attribute the rise in arrears to higher market rates at a time when the property market recovery is being delayed. "The recent surge in project financing arrears at savings banks is the result of a regional property slump, rising unsold homes, higher construction costs and prolonged high interest rates all working at once," said Kim Dae-jong, a professor of business administration at Sejong University. "Savings banks have heavy exposure to real estate project financing and small and mid-sized development sites, so shocks like these quickly show up as a higher delinquency rate."
