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| The Financial Services Commission (FSC) in Seoul / Courtesy of FSC |
By Anna J. Park
The Financial Services Commission (FSC), the top financial regulator, is aiming to lower the risks of securities companies exposed to real estate project financing (PF), one of the biggest risks faced by the local brokerage sector since interest rates were rapidly hiked in the second half of last year globally.
According to the FSC on Wednesday, the financial authorities have decided to prolong the operation of a special buying program of asset-backed commercial paper (ABCP), particularly held by small and medium-sized securities firms, to continue providing liquidity to the market.
The 1.8 trillion won ($1.3 billion) six-month buying program was first launched in November last year in conjunction with authorities, the state-run Korea Development Bank (KDB) and major financial firms, to target market stability and liquidity amid a sudden crunch in the local short-term bond market late last year.
It was originally slated to end by the end of May this year, but the FSC extended it to next February. With the extension, brokerage companies can apply to the buying program, asking it to purchase real estate securitization held until the end of the year.
The regulator also plans to induce securities firms to lengthen debt maturities of real estate securitization to preemptively mitigate real estate PF risks posed to the financial market. Financial authorities see the short-term loan market as stabilizing, but the FSC is continuing to enact measures for further stability to the real estate ABCP market to stop potential risks from spreading into other sectors.
"As the financial uncertainties surrounding interest rate hikes are likely to continue for a while, the delinquency rates of real estate project financing loans are expected to steadily increase. Also, the total amount of loans lent to the real estate PF has maintained at a similar level since the end of last year. Thus, risk factors of the market are still relevant," the FSC explained.
Securities companies hold real estate PF loans amounting to 4.5 trillion won, as of the end of 2022, which is about six percent of their own capital level. The average delinquency rate of the loans stood at 10.38 percent.
