Banks Expected to Further Tighten Household Loan Requirements in Q4

BOK Survey... "Impact of June 27 Measures and Subsequent Policies"

Demand for Household Housing Loans Also Expected to Decline

 [Yonhap News Photo]

Banks are expected to continue tightening their lending standards for household loans in the fourth quarter of this year.

According to the "Financial Institutions' Lending Attitudes Survey" released by the Bank of Korea (BOK) on the 27th, the composite index for banks' lending attitudes in the fourth quarter was recorded at -14.

Although the negative gap has narrowed by 14 percentage points (p) compared to the third quarter (-28), it still indicates that a majority anticipated lending attitudes would become stricter than in the previous quarter.

In this survey, a negative sign (-) indicates a strengthening of lending attitudes, a decrease in credit risk, or a decrease in loan demand, while a positive sign (+) indicates the opposite.

 [Provided by the Bank of Korea]

By loan type, household housing loans showed a stronger tendency for tightening at -28, and household general loans (including unsecured loans) at -19.

However, the degree of tightening has weakened compared to -53 for housing loans and -36 for general loans recorded in the third quarter.

A BOK official explained, "Due to the impact of the June 27 measures and subsequent policies, lending attitudes are expected to tighten for both housing-related loans and unsecured loans."

Loans to large corporations (6) and small and medium-sized enterprises (3) are expected to ease slightly.

The composite index for loan demand in the fourth quarter was -5, remaining at a similar level to the third quarter (-6).

With the government's sustained efforts to manage household debt, demand for household housing loans (-31) is projected to decline.

Conversely, loan demand from large corporations (11) and small and medium-sized enterprises (19) is expected to increase due to needs for working capital and liquidity, among other factors.

The composite index for credit risk anticipated by banks in the fourth quarter was 25, a slight decrease from 28 in the third quarter.

For large corporations and households, the figures remained the same at 11 and 22, respectively. For small and medium-sized enterprises, the expectation of increased credit risk decreased slightly, from 33 to 28.

A BOK official analyzed, "Corporate credit risk is expected to remain a concern due to the ongoing uncertainty in domestic and international economic conditions and concerns about declining profitability stemming from a sluggish industry outlook. Household credit risk will also continue to be a concern, with worries about deteriorating asset quality, particularly among vulnerable borrowers."

Non-banking financial institutions, such as savings banks, are generally expected to maintain their tightening lending stance and keep credit risk at high levels.

This survey was conducted from the 1st to the 15th of last month, targeting the chief lending officers of 203 financial institutions (18 domestic banks, 26 savings banks, 7 credit card companies, 10 life insurance companies, and 142 mutual finance associations). Yonhap News

 [Provided by the Bank of Korea]