Property loan defaults unlikely to pose systemic risk: watchdog

SEOUL, March 30 (Yonhap) -- Property loans extended by banks and other financial
firms remain "relatively" sound and possible defaults would not spark systemic
risk, the financial watchdog said Monday.
Smaller builders, which borrowed mostly from savings banks to buy property during
the 2005-2006 housing market boom, have been struggling to service their debts.
Concerns have mounted that if a bunch of such loans goes sour, it would undermine
the soundness of the banking sector, dealing a harsh blow to the whole economy.
Property loans by financial firms excluding savings banks stood at 69.5 trillion
won (US$50.6 billion) as of the end of September, out of which those by local
banks reached 50.5 trillion won, according to the Financial Services Commission
(FSC). A combined 41.3 trillion won in property loans or 59 percent out of the
total, remained sound, it added.
"The regulator plans to make efforts to stem possible expansion of property loan
delinquency," the FSC said.
The outcome came as local banks are set to receive a capital injection through a
20 trillion won bank recapitalization fund as the slowing economy and a corporate
restructuring revamp are increasing the amount of distressed loans, hurting their
financial health.
The delinquency rate for such loans provided by financial firms except savings
bank came in at an average 3 percent as of the end of last year. The default rate
remains higher than the average delinquency rate of 1.5 percent for banks'
corporate lending, according to the watchdog.
State-run debt clearer Korea Asset Management Corp. is in the process of buying
bad debt worth 1.7 trillion won related to property loans extended by local
savings banks.
sooyeon@yna.co.kr
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