FSS warns $1.85B overseas property investments face delinquency risks

Pier 17, the Empire State Building, Brooklyn bridge and the Chrysler building are seen in the hazy Lower Manhattan skyline, Thursday, June 8, 2023. [AP/YONHAP]

Korea’s financial companies face delinquency risks with 2.46 trillion won ($1.85 billion) they invested in overseas alternative real estate amid a continued slowdown in the property market and a persistently high interest rate.

The financial companies invested a combined 56.4 trillion won in alternative real estate abroad as of last September, which accounted for 0.8 percent of their total assets, according to the Financial Supervisory Service (FSS) on Thursday.

“New investment has stalled, as seen with a similar level of funds invested in overseas properties, as the real estate market recession continues abroad,” said the FSS in a statement.

“The solidification of telecommunications in advanced economies and an interest rate that remains high has increased assets facing events of default, raising the chance that the invested assets will become insolvent.”

The assets facing events of default, a predefined circumstance that allows a lender to demand full repayment before it is due, rose to 6.46 percent last September from 3.7 percent in June of the same year, according to the FSS.

“But the impact of investment losses on Korea’s financial system is limited considering it accounts for less than 1 percent of their total assets and their total loss-absorbency capacity.”

Events of default cannot be interpreted as a total loss, explained the FSS, as investments can be recouped through an extension of the loan maturity period or adjustments in loan conditions.

Insurance companies accounted for a majority of the 56.4 trillion won in invested funds at 56.6 percent, followed by banks and brokerage firms that accounted for 17.9 percent and 14.9 percent of the amount, respectively.

Most of the funds were invested in North America, accounting for 61.1 percent, followed by 19.2 percent in Europe and 7.9 percent in Asia, with 22.5 percent of the total investments set to mature this year, while 77.5 percent will mature by 2030.

The FSS plans to inspect the level of their risk management, including the securing of provisions, and strengthen monitoring over their assets that may grow insolvent.

BY JIN MIN-JI [jin.minji@joongang.co.kr]