The size of South Korea’s real estate-related shadow banking amounts to 470 trillion won (US$421.15 billion), according to a report released by the Korea Institute of Finance (KIF) on Jan. 13.
Shadow banking refers to lending or financial activities by non-bank financial intermediaries that provide services similar to traditional commercial banks but outside normal banking regulations. Shadow banking products include money market funds (MMFs), repurchase agreements (RPs), credit derivatives, asset backed securities (ABS), asset backed commercial paper (ABCP) and hedge fund.
The KIF estimated shadow banking related to the domestic real estate market at 469.7 trillion won (US$420.88 billion) as of the end of September 2018.
By sector, real estate trust has the highest amount with 242.50 trillion won (US$217.29 billion), followed by real estate-related collective investment funds with 139 trillion won (US$124.55 billion), project financing (PF) loans with 41.10 trillion won (US$36.83 billion), real estate backed securities with 23.8 trillion won (US$21.33 billion), PF credit enhancement with 22.2 trillion won (US$19.89 billion) and peer-to-peer (P2P) real estate-related loans with 1.1 trillion won (US$985.66 million).
Property-related shadow banking increased rapidly on the back of the prolonged low interest rate trend and the real estate boom mainly in the capital area after the early 2010s, according to the KIF’s report.
The amount of shadow banking which can bring about system risks depending on real estate business fluctuations is estimated at 80 trillion won (US$71.68 billion). The amount of P2P real estate-related products was only 1.1 trillion won (US$985.66 million) but it was the most sensitive to risks. Among real estate funds, direct development-type products worth 4 trillion won (US$3.58 billion), PF loans from securities companies totaling 19.4 trillion won (US$17.38 billion) and PF credit facilities amounting to 22.2 trillion won (US$19.89 billion) also had a high level of risk sensitivity.