Domestic banks are expected to tighten household loan standards in the third quarter of this year, with rising credit risks for both businesses and households.
According to the Bank of Korea's 'Financial Institutions Lending Behavior Survey' released on July 20, the comprehensive lending attitude index for domestic banks is projected to be -7 for the third quarter, a decrease of 5 points from the previous quarter's -2. A positive index indicates a loosening of standards, while a negative index signifies tightening.
The index for household housing loans stands at -11, while general household loans (including credit loans) are at -14. Large and small enterprises are both expected to maintain an index of 0.
A Bank of Korea official stated, "Corporate loans for both large and small enterprises are expected to remain at the previous quarter's levels. However, household loans will tighten as the trend of managing household debt continues, affecting both housing-related loans and general loans (including credit loans)."
Credit risks for both businesses and households are anticipated to increase in the third quarter. The credit risk index by borrower type shows large enterprises at 8, small enterprises at 25, and households at 19.
Corporate credit risk is expected to rise, particularly for small businesses, due to ongoing uncertainties in domestic and international management conditions, including the situation in the Middle East. For households, concerns about the repayment capacity of vulnerable borrowers are influencing this outlook.
Loan demand is expected to increase for general corporate and household loans, but demand for housing-related loans is projected to decline.
The overall loan demand index is at 17. Corporate loan demand is expected to rise for both large (14) and small enterprises (28) due to liquidity needs stemming from increased uncertainties.
Household loan demand (19) is expected to increase for general loans driven by needs for living expenses and stock market investments, while housing-related loan demand (-3) is anticipated to decrease due to regulatory tightening.
Additionally, in the third quarter, all non-bank financial institutions, excluding credit card companies, are expected to tighten their lending attitudes.
Credit risk is projected to rise across all sectors, influenced by poor conditions in certain vulnerable industries and concerns about the repayment capacity of low-credit and low-income borrowers.
Loan demand from non-bank financial institutions is expected to increase, particularly for corporate working capital and household living expenses, in mutual savings banks and life insurance companies. In contrast, demand from mutual finance and credit card companies is expected to decline due to sluggish local real estate and lending regulations.
This survey was conducted from June 4 to June 17, targeting 203 financial institutions, including 18 domestic banks, 26 mutual savings banks, 7 credit card companies, 142 mutual finance associations, and 10 life insurance companies.
* This article has been translated by AI.
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