This article was published on April 28, 2025, at 1:44 p.m. on the ChosunBiz MoneyMove (MM) site.
It has been confirmed that MERITZ Securities has only set aside a minimal amount for loan-loss reserves related to a Homeplus loan worth billions of won.
According to industry sources on the 28th, MERITZ Securities classified the loan to Homeplus as a fixed asset classified as bad debt (loans that are more than three months overdue). Domestic credit rating agencies assessed that the funds lent by MERITZ to Homeplus could be recovered sufficiently, noting the impact on creditworthiness is limited, while MERITZ classified the loans more conservatively.
However, MERITZ Securities decided to treat the burden of this instead as a reserve rather than a provision. The MERITZ Financial Group lent 1.2 trillion won to Homeplus last year, with MERITZ Securities being the largest lender at 655.1 billion won. The remainder was lent by MERITZ Capital and MERITZ Fire & Marine Insurance, both contributing 280.8 billion won.
The financial company's credit assets are broadly classified into five categories: normal, watch list, classified, doubtful, and estimated loss. The provisioning rate for loan-loss reserves varies according to the collectability of these debts, with normal loans at 0.85%, watch list at 7%, classified at 20%, doubtful at 50%, and estimated loss requiring 100%. MERITZ Securities plans to account for the related loans using loan-loss reserves instead of provisions.
If a financial institution's loan-loss provisions are less than the regulatory amount, the difference must be allocated to loan-loss reserves. However, provisions are treated as an accounting expense, while loan-loss reserves are considered capital (retained earnings). Therefore, by classifying this loan as a fixed asset classified as bad debt and processing it as a reserve instead of a provision, MERITZ Securities effectively avoids impacting its net profit.
Although the loan issued by MERITZ is secured by sufficient collateral, the Homeplus situation has become a social issue, making it impossible for MERITZ Securities to exercise its rights to this collateral immediately. As a result, the industry has been paying attention to whether MERITZ Securities will reflect this loan as a loan-loss provision.
As of the end of last year, MERITZ Securities' loan-loss provision allocation (on an individual basis) was 48 billion won, and its loan-loss reserve was 8.1 billion won.
Until now, MERITZ had not clarified its position. Kim Sang-hoon, an executive at MERITZ Financial Group's investor relations, said at last month's shareholders' meeting, “The loan-loss provisions are calculated based on the amount of loss and the probability of default multiplied together, or in accordance with recommendations from regulatory authorities,” adding, “Loan-loss provisions arise only when there is concern over losses due to default.” Thus, MERITZ has determined there are no issues with recovering the principal.
Meanwhile, MERITZ Securities believes that the loan will not undermine its soundness indicators or other liquidity support decisions. Considering its capital, the exposure level is at a manageable scale, and the risk already accounted for was sufficiently reflected in the interest rate decided at the time of the loan's execution.
The total loan MERITZ provided to Homeplus is 1.2 trillion won, while the estimated value of collateral (stores) that MERITZ can dispose of at any time was 4.8 trillion won as of the end of last year.
Regarding MERITZ's lack of loan-loss provisions, a senior official in the securities industry analyzed, “This indicates a commitment to recover the full amount of the loan through methods such as contributions from MBK Partners.”