By Kang Seung-woo
The nation’s financial regulator said Wednesday that it is seeking ways to extend the maturity of soured project financing (PF) loans of savings banks to prop up the reeling industry.
According to the Financial Services Commission (FSC), it plans to stretch the rollover period from three years to five in the second half and the amount of non-performing construction loans is estimated at between 5 trillion ($4.62 billion) and 6 trillion won.
The Korea Asset Management Corp. (KAMCO) picked up 5.2 trillion won of non-performing PF lending from 89 troubled savings banks at a 50 to 80 percent discount with a maturity of three years between December 2008 and June 2010.
As a result, the secondary lenders, which had to pile up loan-loss provisions 11 times over three years to improve their asset quality and eliminate piles of toxic real estate loans, will benefit from the rollover that obligates them to build up reserves 19 times over a five-year span, which the FSC expects will bring down their quarterly reserve quota by around 42 percent.
The move came after savings banks’ asset quality continued to struggle due to growing defaults on property-linked loans. A prolonged housing market slump has been crippling builders’ ability to repay loans, ending in a mountain of bad PF loans on savings banks’ balance sheets.
However, as savings banks have already set aside provisions for 300 billion won in bad loans scheduled to mature at the end of this year, a combined 4.9 trillion won in non-performing loans expiring in March and June next year ― 1.2 trillion and 3.7 trillion won, respectively ― are likely to fall under the new plan.
The FSC is also considering applying the move to bad debts that are currently under scrutiny. Since May 30 the financial regulator and the Financial Supervisory Service (FSS), its executive arm, have been conducting stress tests on 486 property projects financed by the 89 local savings banks in order to filter out potential loan losses. After completing the tests on Thursday, the FSC will push to sell loans classified as non-performing or likely to go sour to KAMCO this month.
Meanwhile, the FSC announced last month that it will postpone the application of the Korea-International Financial Reporting Standards (K-IFRS) on listed savings banks until 2016 in a bid to ease their burden of building up reserves.
Initially, the standards were supposed to go into effect from July 1 this year.