Korea Housing Finance Corp.'s Debt Ratio Nears 250%... Jumps 162 Percentage Points in 5 Years

Debt Ratio Soars from 81.7% to 244% in Five Years
Rise Driven by Increase in Advance Replacement for Trust Payments and Bond Issuance
Mid- to Long-Term Financial Plan Forecasts Decrease Starting 2027
Ratio to Be Managed at 194.3% by 2030

The debt ratio of the Korea Housing Finance Corporation is projected to rise to 244% this year. This figure, which is up by 18.2 percentage points from last year, is approaching the 250% mark. The increase is attributed to a rise in ‘advance replacement for trust payments’—a mechanism where the corporation temporarily covers a shortfall in funds intended for Mortgage-Backed Securities (MBS) investors—as well as an increase in bond issuances to fund policy mortgages such as the Bogeumjari Loan. The Korea Housing Finance Corporation expects that as funding demands decrease starting next year, its debt ratio could be brought down below 200% by 2030.

According to the Ministry of Economy and Finance and the Korea Housing Finance Corporation on September 21, the corporation recently forecasted in a mid- to long-term financial management plan submitted to the ministry that its year-end debt ratio would reach 244.0%. This represents an increase of 18.2 percentage points compared to 225.8% at the end of last year.

At the end of this year, the Korea Housing Finance Corporation’s debt is expected to stand at 49.5 trillion won, up 7.5 trillion won from 42 trillion won last year. Assets are also forecast to grow by 9.2 trillion won, from 60.6 trillion won to 69.8 trillion won over the same period.

The corporation’s debt ratio has risen sharply over the past five years. It was 81.7% in 2021, 134.0% in 2022, and 191.4% in 2023. In 2024, it surpassed the 200% mark for the first time, at 225.9%, and remained at 225.8% last year. If this year’s projections are realized, the ratio will have climbed by 162.3 percentage points in five years.

The main drivers of the debt ratio increase this year are the rise in advance replacement for trust payments and increased bond issuance. An official from the corporation explained, “This year, advance replacement for trust payments increased, as did the issuance of won-denominated bonds. In particular, given that funding conditions in overseas financial markets were more favorable than in Korea, we issued more foreign currency-denominated bonds than in previous years.”

The Korea Housing Finance Corporation acquires mortgage loans from financial institutions and deposits them into a separate trust account, which serves as the basis for issuing MBS. The trust account pays principal and interest to MBS investors from the payments borrowers make. If the principal and interest from borrowers are not received as scheduled, or if the timing of inflows to the trust account does not align with the MBS payment dates—leading to a temporary shortfall—the corporation uses its own funds to make up the deficit. This is called advance replacement for trust payments.

This year, a decrease in early repayments on mortgage loans appears to have increased the corporation’s liquidity support for the trust account. The official noted, “Advance replacement for trust payments is a temporary revolving structure in which the corporation pre-funds the trust account and later recoups the funds as they are repaid from the trust.”

An expansion in overseas funding also contributed to the increase in debt. The corporation explained that, due to falling interest rates and more favorable conditions in international bond markets, it issued more foreign currency bonds this year than in the past.

However, the Korea Housing Finance Corporation expects the debt ratio to gradually decline after peaking this year. According to its mid- to long-term financial management plan, the debt ratio will fall to 232.2% in 2027, 209.3% in 2028, and 193.1% in 2029. In 2030, the debt ratio is to be managed below 200%, at 194.3%.

The size of the corporation’s debt is also expected to decrease from 49.5 trillion won this year to 49.4 trillion won in 2027, 46.7 trillion won in 2028, and 45.1 trillion won in 2029. However, it is projected to rise again to 47.3 trillion won in 2030. In the same year, assets are set to expand to 71.7 trillion won.

The corporation believes that, starting next year, market stabilization will be accompanied by a reduction in overseas bond issuance and capital needs, leading to a decline in the debt ratio. Capital infusions and accumulated earnings were also cited as factors for lowering the debt ratio.

An official stated, “This year, we raised the necessary funds in advance, taking advantage of favorable overseas bond issuance conditions. From next year, as financial markets stabilize and capital requirements decrease, we anticipate the need for further overseas bond issuance and additional funding will also fall.”

This content was produced with the assistance of AI translation services.