The Korean NPL market is undergoing rapid transformation, presenting challenges and opportunities for investors. Historically, it has been primarily driven by divesting non-performing loans from major financial institutions. However, its scope has recently broadened to encompass assets from more diverse financial entities, including mutual finance institutions, savings banks, and specialized credit companies.

This structural shift is primarily attributed to the prolonged high-interest-rate environment. Loans originated at historically low rates between 2019 and 2021 have now reached maturity while rising borrowing costs have significantly constrained refinancing options for many borrowers.

According to the Bank of Korea and the Financial Supervisory Service, the delinquency rate on KRW-denominated loans at domestic banks shifted to an upward trend in the second half of 2022. It reached 0.42% as of the first half of 2024. Given that the total loan balance is KRW 2,734 trillion, even a 0.1 percentage point increase in the delinquency rate could translate into nearly KRW 3 trillion in additional distressed assets, underscoring this segment's growing scale of investment opportunities.

It is also important to note the sharp increase in construction costs, driven by the lingering effects of the COVID-19 pandemic and the Ukraine war. According to the Construction Cost Index compiled by the Korea Institute of Construction Technology, the index stood at 130.45 as of September 2024, marking a rise of over 30% compared to January 2020. This surge is more than twice the 15% increase recorded over the previous five-year period (January 2015–December 2019).

Industry professionals report that the perceived rise in construction costs exceeds 50% for specific projects, such as office developments. These observations indicate that the impact extends beyond statistical indicators, reflecting a substantial and widespread increase in cost burdens across development projects.

The sharp escalation in construction costs is placing significant pressure on new projects preparing for PF conversion, while those already in the PF phase are also struggling to mitigate non-performing risks due to cost overruns. The PF loans held by securities firms and specialized credit finance companies set to mature by 2025 are estimated to be approximately KRW 21.6 trillion. The estimated volume of maturing PF loans suggests a potential increase in distressed assets as these loans near maturity, which could expand opportunities for lending and equity investments.

This trend, coupled with the structural evolution of the NPL market, signals a shift toward a buyer’s market. In 2024, the volume of NPL disposals by primary financial institutions totaled approximately KRW 8.4 trillion, with improved investment conditions driven by lower acquisition price ratios and a more competitive bidding environment. These dynamics create opportunities for acquiring distressed assets and open avenues for a broader range of investment strategies.

We are at the forefront of capitalizing on these opportunities, led by our Special Situations Part. This division is composed of seasoned professionals with extensive experience from leading NPL investment firms, including Eugene Asset Management’s NPL division, UAMCO, Daishin F&I, and Hana F&I. Leveraging their respective areas of expertise, the team operates with a highly systematic and agile approach, driving long-term value creation through seamless collaboration.

Beyond its human capital, IGIS Asset Management’s core strengths lie in its accumulated expertise in NPL fund management since 2016 and the competitive advantage of its in-house AMC. This foundation enables a structured approach to asset management and investment opportunity sourcing, facilitating risk-conscious investment strategies in the market.

By Soyeong Park, Contents Writer

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