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● Debt-fueled Distress

2024 Land-Backed Loans, Savings Banks, Financial Risk from Real Estate PF: A Comprehensive Overview

Key Points Covered in This Article

– Background and future repercussions of the surge in delinquency rates for land-backed loans
– Changes in the soundness of non-banking financial institutions (especially savings banks and mutual finance) and risk assessment
– Rapid increase in unsold and distressed unsold homes, the link between construction companies and financial institution insolvencies
– Real estate PF loans, savings banks’ loan loss reserves, and trends of deteriorating short-term net profits
– Possibility of financial crisis contagion in 2024, systemic risk assessment

Land-Backed Loans and Real Estate PF: The Beginning of Risk

The increase in delinquency rates for land-backed loans goes beyond simple loan defaults.
The slump in construction projects, especially the failure of construction companies to recover funds, leads to loan defaults.
In particular, the concentration of land-backed loans to construction companies by non-banking financial institutions (mutual finance, savings banks) has resulted in a severe increase in delinquencies.
Savings banks have seen a sharp decline in total assets and a reversal to net losses in 2023-2024.
Nearly one million self-employed individuals have closed their businesses, and the number of vulnerable self-employed borrowers has surged to 13.7%.
Household debt and self-employed debt delinquencies, coupled with real estate market instability, are spreading risks throughout the financial market.

Trends in Real Estate PF Loan Balance and Delinquency Rate: Where is the Peak of Risk?

• The real estate PF loan balance peaked at the end of 2023, slightly decreased in 2024, but the delinquency rate surged from 2.7% to 3.4%.
• The media only emphasizes the simple annual delinquency rate, but in reality, the delinquency rate has been declining since the first quarter of 2024.
• Due to the restructuring of insolvent construction companies and the risk management efforts of the government and financial institutions, the 'peak' of insolvency is considered to be in early 2024.
• A simple decrease in balance is not necessarily good. The delinquency rate is still high, and the risk of residual insolvency is significant, so complacency is unwarranted.

Data Analysis on Systemic Risk Contagion

Whether PF insolvency will spread to the entire financial system is key.
Tracking major systemic risk indicators such as the financial stress index and financial vulnerability index shows that

• As of 2024, it has not yet entered the 'risk' stage and is not as severe as in the past (during the COVID-19/Legoland incident).
• Loan delinquency rates and non-performing loan ratios have also shown some stabilization since peaking in the first quarter.
  Looking at the risk exposure by financial institution,
• Banks have relatively low delinquency rates and are sound.
• Non-banks (especially savings banks and mutual finance) are quite vulnerable, with declining delinquency and insolvency ratios, and capital ratios.
• Regionally, savings banks centered in non-metropolitan areas and provinces are particularly amplifying risks.

Unsold and Distressed Unsold Apartments: Barometers of the Real Estate Slump

In 2023-2024, post-construction unsold homes, so-called 'distressed unsold homes,' reached the worst levels.
The concentration of unsold homes, especially in non-metropolitan areas, is severe, and falling sales prices and failed sales lead to inability to repay debt and insolvency.
As unsold apartments accumulate even after construction, construction companies and financial institutions face joint insolvency.

Savings Banks and Mutual Finance: Concentration of High-Risk Loans, Expanding Losses

Savings banks' non-performing loan ratio (insolvency rate) is still very high, around 10%.
In particular, the high proportion of loans to small and medium-sized construction companies in the provinces means that provincial savings banks are facing the aftermath of a high-risk, high-return strategy.
Losses amounted to one trillion won over two years in 2023-2024, and total assets also shrank.
Mutual finance is also unstable but less risky than savings banks. Insurance, securities, and credit finance companies are relatively stable.

PF Loans and Non-Performing Loans: Risks Concentrated in Non-Banking Financial Institutions

The banking sector is generally safe, with low delinquency and bad loan ratios.
On the other hand, non-banking financial institutions such as savings banks and mutual finance have excessive non-performing PF loans and delinquencies compared to capital, posing a high risk of localized shocks, although systemic risk is not significant.
The risk chain of construction companies-savings banks-mutual finance is strengthening, emphasizing the need to focus on setting aside loan loss reserves by financial institution.

Community Credit Cooperatives’ Insolvency Issues and Loan Loss Reserve Strategy

Community Credit Cooperatives' delinquency rate slightly decreased at the end of 2024, diagnosing the 'peak' of risk as early 2024.
The net capital ratio is well above the minimum regulatory ratio (4%), so there is room to withstand the situation for now.
Strengthening loan loss reserves in 2024 (in the 7 trillion won range) and expanding short-term net losses are due to proactive risk management.
There is no need to panic by just looking at the decrease in profits, and more will be reserved if necessary.
It is reasonable for depositors to judge the overall context rather than hastily terminating deposits while accepting fixed interest losses.

Possibility of Financial Crisis Contagion from Savings Banks and Mutual Finance

The current insolvency pattern is a localized shock that leads to financial insolvency in some non-banking financial institutions such as construction/real estate insolvency → savings banks, mutual finance.
Expansion to a system-wide crisis (e.g., collapse of the banking sector, the entire financial system) is currently low.
However, there is still a possibility of some bank runs in the relevant sector if the bottom of the crisis in savings banks has not been reached and high-risk situations are left unattended.
Some of the top 5 savings banks rely on high-risk operations, neglect loan loss reserve accumulation, and need to be cautious about the possibility of recovery.

Conclusion: Financial Market Risk Assessment & Checkpoints

• Real estate-related delinquencies and insolvencies are still ongoing, but there is a trend of gradual stabilization, with the first half of 2024 as the peak.
• Pay attention to localized shocks in non-banking financial institutions such as savings banks and mutual finance, and continuously monitor asset, profit, and risk management plans.
• The financial institution contagion chain of construction companies and real estate insolvency, the risk may surge again depending on the emergence of additional chain insolvencies.
• The possibility of spreading into a financial crisis for the entire financial system is limited, but additional policy responses and strengthening of standard reserve funds are needed.
• If you are a depositor, you need to conduct a cold-headed data check and a reliable assessment of the soundness of each financial institution rather than panic actions.

< Summary >

In 2024, the crisis in non-banking financial institutions such as savings banks is expanding due to real estate PF and land-backed loan insolvency.
Delinquency rates and non-performing loans hit record highs, but the real peak is analyzed to be early 2024.
Coupled with construction and real estate insolvency, provincial savings banks are at risk, and Community Credit Cooperatives are mobilizing all defense measures such as expanding loan loss reserves.
The possibility of financial crisis contagion is low, but some individual sectors are serious, and it is necessary to continuously monitor the savings banks' recovery issues.
It is an important time for data-driven risk management, not panic.

[Related Articles…]

• Savings Banks Crisis Rumors, the Real Impact on the Financial Market
• Sharp Increase in Unsold Apartments in 2024, Diagnosis of Construction and Financial Chain Insolvency Theory

*YouTube Source: [경제 읽어주는 남자(김광석TV)]

– [풀버전] ‘금융 경고등’ 켜졌다. 대출 연체율 역대 최고치… 부동산PF, 가계부채 급증, 자영업자 폐업 심각하다 | 금융 부실 특집

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● US-China Talks, Sunday Showdown?

2024 US-China Geneva Talks: Comprehensive Summary & Global Market Impact

This article covers the entire process of the '2024 US-China Geneva Talks,' a central issue in the global economy, including real-time power struggles, key issues, global stock market (especially S&P500) reactions by outcome scenario, and future economic outlook.
It details subtle changes amid complex conflicts between the US and China over tariffs, supply chains, and fentanyl issues, along with JPMorgan's detailed predictions and market impacts of headline issues.
This article provides a comprehensive overview for assessing the future global stock market and economic outlook.

1. Development and Background of the 2024 US-China Geneva Talks

• This is the highest-level US-China talks on economic issues, held in Geneva in June.
• Strong power struggles and controversies between the two countries persisted before and during the talks.

United States:

• At the beginning of negotiations, former President Trump stated, "Raising tariffs up to 80% would be appropriate," amid rumors of "tariff cuts," increasing the US negotiation leverage.
• Key delegations including representatives from the US Trade Representative (Besant, Greer) attended.

China:

• Through Xinhua News Agency commentary, China announced a strong stance, stating, "Defending the international economic order, US tariff imposition violates WTO regulations."
• Emphasized its economic recovery, including domestic growth rate (5.4% quarterly) and overseas buyer attraction performance, intending to consolidate domestic demand.
• The sudden inclusion of Minister of Public Security Wang Xiaohong in the delegation revealed a willingness to include sensitive issues such as fentanyl on the agenda.

2. Key Issues and Real-time Negotiation Atmosphere

• Intense psychological warfare over who proposed the meeting first.
• Rumors of negotiation breakdown spread as the delegation briefly disappeared during lunchtime, but it was actually just a lunch break before resuming.
• The first round concluded after marathon talks lasting over 8 hours without announcing any agreement.

Summary by key issue:

• High tariffs (additional tariffs of 20-80% from the US)
• Global supply chain stability
• Non-economic factors and security issues such as the fentanyl issue
• Competition for leadership in adhering to trade order and WTO regulations

3. JPMorgan’s Four Scenarios and Global Market Impact Forecasts

1. Negotiation Breakdown (10% Probability)
   • If additional tariffs are imposed, the global stock market (S&P 500) is expected to decline by 2.5%.
   • Issues of global economic slowdown and reduced trade
2. Status Quo (40% Probability)
   • Negotiations conclude without clear progress, S&P 500 is expected to decline by 1.5%.
   • Prolonged tariff and trade uncertainty, continued global market volatility
3. Slight Improvement (35% Probability)
   • If small achievements and some positive signals are exchanged, the S&P 500 is expected to rise by 1%.
   • Preparation of the seeds of an agreement, psychological stabilization effect
4. Positive Resolution (15% Probability)
   • If tariff freezes or significant reductions are achieved, the S&P 500 is expected to rise by 3%.
   • Expectations of global trade recovery, recovery of risk asset preference

4. Global Economic Outlook and Key Investment Points

• Depending on the scope and level of the agreement, immediate impacts are inevitable in all areas such as 'global stock market, economic growth, supply chain stability, and risk assets.'
• With the prominence of non-economic issues such as fentanyl, the agenda is diversifying beyond simple tariff/trade disputes.
• Monitor additional news and official announcements after the weekend, and it is essential to reorganize investment strategies.

< Summary >

• The 2024 US-China Geneva Talks, with high-level negotiations and intense psychological warfare, have concluded the first round without an agreement.
• Major issues such as tariffs and fentanyl drive market confidence and global economic outlook.
• JPMorgan presents four scenarios, with the possibility of a sharp rise or fall in the global stock market (S&P500) depending on the outcome.
• It is a key event that will greatly influence future global economic, trade, and investment strategies.

[Related Posts…]

• China, the secret to achieving an economic growth rate of 5.4% and its global impact
• Global tariff war, impact on the trade market and investment strategy

*YouTube Source: [Maeil Business Newspaper]

– [속보] 제네바 미중회담, 일요일 결판 나나. JP모건 예측 회담 시나리오별 증시 I 홍장원의 불앤베어