Hyundai Motor Securities' real estate project financing risk expanded in the watchlist category rather than fixed-and-below assets at the end of Q1 2025. Watchlist-and-below assets approached 400 billion won, and net watchlist-and-below assets exceeded 20% of equity capital after deducting provisions. The expansion reflects poor sales performance in regional and non-apartment projects that remain in the normal and watchlist stages, representing hidden risks that could generate additional provisions from real estate finance exposure equal to 87% of equity capital.
Watchlist Assets Increase 33.3% While Fixed Assets Remain Stable
Hyundai Motor Securities' watchlist-and-below assets increased from 298.2 billion won at the end of last year to 397.6 billion won at the end of Q1 2025, an increase of 99.4 billion won. The increase rate was 33.3%. The ratio of net watchlist-and-below assets to equity capital also rose from 13.5% to 20.3% during the same period, an increase of 6.8 percentage points.
Fixed-and-below assets increased by only 5 billion won from 199.4 billion won to 204.4 billion won. Most of the increase in watchlist-and-below assets did not move down to the fixed-and-below stage with lower recovery possibility. The identified risk lies in the widening scope of assets with potential business viability deterioration rather than a surge in confirmed losses.
Not all of the increase in watchlist-and-below assets can be attributed to real estate PF. Some customer credit extensions were temporarily classified as watchlist during Q1 2025 market volatility when they fell below margin maintenance ratios. Related issues were resolved through forced selling and collateral price recovery. However, the majority of total watchlist-and-below assets at the end of Q1 2025 still consisted of real estate finance.
Real Estate Finance Exposure Reaches 87% of Equity Capital
The remaining burden concentrated in existing main PF projects. Even after conversion to main PF, projects such as non-metropolitan officetel, commercial facilities, and logistics centers with poor sales or disposition performance may experience delayed recovery. Bridge loans with delayed main PF conversion or repeated maturity extensions were also included in fixed-and-below assets. If business viability worsens for regional and non-apartment projects classified as normal or watchlist, it could lead to asset reclassification and additional provision accumulation.
The total volume of real estate finance also increases the burden. Real estate finance exposure including credit extension履行 such as debt guarantees and private bonds was 87% of equity capital at the end of Q1 2025. This significantly exceeds the comparison group average of 52% and small-to-medium-sized firm average of 45% as of the end of last year.
The PF proportion within real estate finance was 53%. The entire 87% does not mean PF. The bridge loan proportion within PF was also 17%, lower than the comparison group average of 26%. However, the mezzanine and subordinated proportion was 60%, exceeding the comparison group average of 56%. The structure is such that the sales and recovery performance of existing projects that have already moved to main PF, rather than new bridge loans, determines the direction of soundness.
Provision Coverage Ratio Declines as Watchlist Assets Grow
Provisions should be examined for asset growth speed rather than absolute amount. Provisions increased from 104.6 billion won at the end of last year to 107.9 billion won at the end of Q1 2025, an increase of 3.3 billion won. Provisions were not reduced. However, as watchlist-and-below assets increased more rapidly, the provision ratio to watchlist-and-below assets declined from 35.1% to 27.1%. This is lower than the comparison group average of 39% as of the end of last year.
The provision ratio to fixed-and-below assets maintained a similar level from 52.4% to 52.8%. This fell short of the comparison group average of 68% as of the end of last year. Since actual loss scale varies depending on collateral value, seniority, and expected recovery amount, provision shortage cannot be determined solely by these ratios. However, room remains for additional accumulation burden if business viability of watchlist projects deteriorates.
Capital Adequacy Remains Strong Despite PF Risks
Hyundai Motor Securities has been trimming its portfolio by reducing PF total volume and bridge loans. According to company public data, the PF exposure ratio to equity capital decreased from 50% in 2023 to 42% in 2024 and 38% last year. The bridge loan proportion at the end of last year also shrank to 12.3%. While risky new transactions were reduced, the cleanup of existing regional and non-apartment main PF has not been completed.
Capital adequacy is sound. The net capital ratio at the end of Q1 2025 was 564.6%, and the adjusted operating net capital ratio was 241.5%. Rather than the possibility of PF immediately spreading to a capital crisis, weight is placed on the possibility that additional provisions for existing projects will constrain performance and capital accumulation.
A financial investment industry official stated that Hyundai Motor Securities lowered new risks by reducing PF total volume and bridge loan proportion, but noted that the scale of real estate finance relative to equity capital is large and regional and non-apartment projects remain in the watchlist stage, requiring monitoring of whether sales and recovery delays lead to additional provisions.
FAQ
What happened to Hyundai Motor Securities' watchlist assets in Q1 2025?
Hyundai Motor Securities' watchlist-and-below assets increased from 298.2 billion won at the end of last year to 397.6 billion won at the end of Q1 2025, representing a 33.3% increase. The ratio of net watchlist-and-below assets to equity capital rose from 13.5% to 20.3% during the same period.
How much real estate finance exposure does Hyundai Motor Securities have?
At the end of Q1 2025, Hyundai Motor Securities' real estate finance exposure including debt guarantees and private bonds was 87% of equity capital. This significantly exceeds the comparison group average of 52% and small-to-medium-sized firm average of 45% as of the end of last year. PF accounted for 53% of real estate finance, with 60% in mezzanine and subordinated positions.
What is Hyundai Motor Securities' capital adequacy status?
Hyundai Motor Securities maintained sound capital adequacy at the end of Q1 2025, with a net capital ratio of 564.6% and an adjusted operating net capital ratio of 241.5%. The company has been reducing PF total volume and bridge loan proportion to lower new risks.
