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S. Korea's commercial mortgage risks grow in 2012

07-30-2012 12:49 BJT

SEOUL, July 30 (Xinhua) -- South Korea's commercial mortgage risks grew this year as commercial property-backed loans continued to increase amid rising delinquency rate, a report by the central bank showed Monday.

Commercial mortgage loans extended by 6 major local banks, including Kookmin Bank and Woori Bank, reached 196.8 trillion won (173.16 billion U.S. dollars) as of the end of May, according to the Bank of Korea (BOK). The figure was close to 223.8 trillion won for the residential mortgage as of end-May.

The commercial property-backed loans expanded 4.9 percent during the January-May period compared with the same period of last year, faster than a 0.9 percent on-year increase for the home- backed loans.

The commercial real estate-related loans began rising faster than residential mortgage loans from 2010. The commercial mortgage increased 11.9 percent on-year in 2011 and 8.0 percent in 2010 each, faster than an 8.4 percent increase for the residential mortgage in 2011 and a 6.7 percent growth in 2010 respectively.

A commercial mortgage is similar to a residential mortgage, but it has a key difference from the home-backed loan in that it uses commercial real estate such as commercial building, factory and land as collateral to secure repayment.

South Korea's commercial mortgage has a structural weakness as a large portion of loans are composed of loans borrowed by self- employed with commercial building as collateral.

As of end-May, loans borrowed by self-employed accounted for 37 percent of the total as of end-May, with the ratio of using commercial building as collateral coming to 35 percent.

The commercial building-backed loans by self-employed continued to increase as baby-boomer retirees rushed to establish startup companies with loans using commercial building as collateral, the report said.

As income situation for the country's self-employed worsened, the commercial mortgage's soundness exacerbated recently, according to the report. The delinquency ratio for the commercial mortgage stood at 1.44 percent as of end-May, up 0.47 percentage point from five months before. The figure was higher than the ratio of 0.93 percent for the residential mortgage as of end-May.

Editor:James |Source: Xinhua

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