(Bloomberg) -- South Korea’s financial market regulator is increasing pressure on lenders to clean up troubled real estate loans as the nation’s political turmoil hurts economic growth.
Korean financial institutions will “organize and restructure” 16.2 trillion won ($11.2 billion) of loans in the first half of 2025, the Financial Supervisory Service said in a statement Thursday. That constitutes more than 70% of their 22.9 trillion won of exposure in risky real estate projects as of end-September.
The move follows earlier steps by the regulator, including setting tight deadlines for lenders’ cleanup plans, to boost their financial health and restore confidence in the property market. The nation’s political turmoil has further exacerbated concerns about its economy, reinforcing the need for fiscal support and stabilizing measures.
The risks related to real estate project finance are being managed in a “stable manner” and authorities will continue to encourage financial institutions to quickly implement follow-up management of the risky loans, the FSS said.
While the regulator said the ongoing political turmoil has “limited impact” on the funding market, Bank of Korea Governor Rhee Chang-yong warned that it’s weighing on the economy and may lead to a reduction in growth forecasts.
The project finance debt is a potential threat for local financial markets. A debt restructuring by Korean builder Taeyoung Engineering & Construction Co. earlier this year rekindled memories of a default in 2022 by the developer of a Legoland amusement park that sent some corporate borrowing costs to over decade-highs.
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