Financial regulator urges efforts to minimize risks from short-term real estate loans

The head of the financial regulator on Thursday urged construction firms to quickly minimize risks from short-term loans related to real estate projects. Lee Bok-hyun, chief of the Financial Supervisory Service (FSS), also advised lenders to keep their interests rates and fees for such loans at "reasonable" levels. Short-term loans for property projects, called project financing (PF) here, have emerged as a major source of risks for the financial sector due to recent price hikes that led to sharp declines in the profitability of many projects. For instance, a 189 billion won (US$142.5 million) project to build a logistics center was expected to return a 19 billion won profit when it was launched, but is currently estimated to post a 16.3 billion won loss, if completed, due to the recent price increases, according to the FSS. "The Financial Supervisory Service is focusing on liquidating or restructuring poor business projects to put them back on the right track," Lee said while meeting with officials from banks, brokerages and construction companies. "Also, it will continue to find and improve irrational systems and practices. It will especially work to ease the financial burden of construction firms by checking to see if interest rates and fees on PF loans are applied at reasonable levels," he said. Developers and their creditors in the project are now moving to turn the project into a 600 billion won plan to build an IT data center, producing an anticipated profit of 30 billion won instead. "Lee stressed the need for the financial sector to continue producing such exemplary cases through active restructuring of projects," the FSS said of the meeting. Source: Yonhap News Agency