(Photo= Yonhap news)

 

[Alpha Biz= Reporter Kim Sangjin] The Financial Supervisory Service (FSS) will conduct on-site inspections starting this week on financial institutions that have not properly evaluated the feasibility of their real estate project financing (PF). Upon confirming the business feasibility grades through inspections, the restructuring of underperforming businesses will commence from next month.

According to the financial sector on the 8th, the FSS is examining whether the PF project evaluation results submitted by financial institutions are appropriate. Previously, financial authorities strengthened PF project feasibility rating criteria to facilitate project implementation. They expanded the evaluation from the existing three grades (sound, normal, deteriorating) to four grades (sound, normal, caution, underperforming), aiming to promote restructuring of caution and underperforming projects.

The FSS instructed over 5,000 nationwide PF project offices that provided loans to reassess those experiencing delays, payment deferments, or three or more loan extensions. Projects rated as 'caution' under the new four-tier system must undergo restructuring or voluntary sales, while those rated 'underperforming' are subject to write-offs or forced sales, with provisions for 75% of doubtful debts as losses. Certain sectors like savings banks are concerned about deteriorating financial performance due to additional provisions, potentially leading to decreased capital ratios.

The FSS will cross-check and inspect whether financial institutions' PF project evaluations align with their own assessments. Those deemed overly lenient in evaluating project feasibility will undergo on-site inspections. The inspections are scheduled to prioritize cooperative financial institutions, savings banks, commercial banks, and insurers in that order.

Financial authorities anticipate administrative sanctions against institutions where PF project evaluations were not properly conducted despite corrective measures and on-site inspections.

Upon final confirmation of PF project evaluation grades through inspections, the scale of underperforming projects is expected to be revealed. Financial authorities estimated that by the end of last year, approximately 2-3% of projects were underperforming or rated as caution, potentially expanding to 5-10% of all projects.

Financial institutions are required to notify implementing agencies and construction companies of their PF project evaluation results and submit post-management plans by the end of this month. The FSS plans to continuously monitor compliance with these post-management plans after their submission.

 

 

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