By Lee Yeon-woo
A total of 2.4 trillion won ($1.7 billion) invested in overseas real estate by domestic financial institutions faces the risk of default due to the market downturn in the U.S. and Europe. The growth in potential bad debts, however, has slowed compared to the previous year.
According to data from the Financial Supervisory Service (FSS) released on Wednesday, the amount of alternative investments in real estate made by financial institutions reached 57.6 trillion won as of last December. This signifies an increase of 1.2 trillion won compared last September.
During the same period, financial institutions collectively invested a total of 35.1 trillion won in a single real estate project. Among this sum, 2.41 trillion won has experienced an event of default (EOD).
EOD indicates projects where interest or principal payments to senior creditors were missed, or where the loan-to-value ratio conditions were not met due to a decline in asset value.
The EOD amount has increased by over 1 trillion won over a span of six months, rising from 1.33 trillion won in the second quarter of last year.
Looking at the investments by sector, insurance companies held the highest amount at 31.3 trillion won, followed by banks with 11.6 trillion won, brokerage firms with 8.8 trillion won, and mutual finance with 3.7 trillion won.
By region, investments in real estate in North America ranked highest at 34.8 trillion won, constituting 60.3 percent of the total. This was trailed by Europe at 11.5 trillion won, and Asia at 4.2 trillion won.
“Given that the scale of overseas real estate investments is not large and there is sufficient loss absorption capacity, the impact of overseas real estate investment losses on the domestic financial system is limited,” the FSS said.
However, the risk of further price drops cannot be ruled out, according to the FSS. As so, the FSS plans to implement a rapid reporting system for unusual trends, and enhance periodic monitoring of assets maturing this year.
