In Q2, Savings Banks and Mutual Finance Loan Thresholds Likely to Rise... Impact of COVID-19

Bank of Korea 'Survey on Lending Practices of Financial Institutions' Results

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] In the second quarter of this year, the lending threshold through non-bank financial institutions such as savings banks, mutual finance, and card companies is expected to rise. This is due to increased economic uncertainty caused by the COVID-19 pandemic and concerns about the real estate market slowdown.

According to the "Survey Results on Lending Behavior of Financial Institutions" announced by the Bank of Korea on the 21st, the lending attitude index of mutual savings banks in the second quarter recorded -15, sharply falling compared to -4 in the first quarter. The lending attitude indices of non-bank financial institutions such as credit card companies (-6), mutual finance cooperatives (-16), and life insurance companies (-9) also all recorded negative values.

A positive (+) lending attitude index means that more institutions intend to ease loan screening, while a negative (-) index means more institutions intend to tighten it.

An official from the Bank of Korea explained, "In particular, the lending attitudes of mutual finance cooperatives and savings banks are expected to tighten," adding, "Non-bank financial institutions plan to strengthen credit soundness management as they are concerned that borrowers' repayment ability will decline due to economic slowdown."

All non-bank financial institutions also expected credit risk to increase in the second quarter. Loan demand is expected to increase mainly in card companies and savings banks.

In the case of domestic banks, credit risk for all corporate and household loans is expected to increase significantly, but lending attitudes are expected to ease mainly for small and medium-sized enterprises (SMEs) and general household loans.

The lending attitude index for general household loans at domestic banks in the second quarter rose to 13 from 10 in the first quarter. The SME lending attitude index also only slightly decreased from 23 to 20. However, the lending attitude index for large corporations fell from 0 in the first quarter to -3 in the second quarter.

This is interpreted as a result of eased loan screening for SMEs following the government's COVID-19 related financial support policies. Previously, financial authorities announced a "super-low interest rate financial support package" at the end of last month, providing loan support for small business owners and extending loan maturities and interest payment deferrals for SMEs (including sole proprietors). However, domestic banks expect that loan screening related to housing will tighten due to the impact of the December 16 housing market stabilization measures last year.

With expanding economic uncertainty, credit risk for large corporations and SMEs is expected to increase mainly in vulnerable industries. In particular, for SMEs, credit risk vigilance is expected to rise significantly due to sales declines caused by sluggish real economy. Household credit risk is also expected to increase mainly among vulnerable borrowers due to concerns over reduced household income.

Loan demand from corporations is expected to increase in the second quarter, and household loan demand is also expected to rise, mainly for general loans, as household income decreases due to the recent economic downturn.

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