The Threshold for Household Loans at Banks Will Rise Further in Q4

[Asia Economy Reporter Kim Eun-byeol] Household loan management by domestic banks is expected to become stricter in the fourth quarter.

According to the survey results on lending behavior of financial institutions by the Bank of Korea on the 12th, the overall attitude of domestic banks toward lending in the fourth quarter is expected to be more stringent than in the third quarter.

The survey was conducted from the 14th to the 25th of last month targeting loan officers from 201 financial institutions (17 domestic banks, 16 mutual savings banks, 8 credit card companies, 10 life insurance companies, and 150 mutual finance cooperatives). From the third quarter survey, two internet-only banks were also included in the survey subjects.

Based on the survey results, if the indices for lending attitude, credit risk, and loan demand are positive (+), it means that the number of financial institutions responding with "easing lending attitude," "increase in credit/loan demand" is greater than those responding with "strengthening lending attitude," "decrease in credit/loan demand." If the index is negative (-), the opposite is true.

Compared to the second quarter, the lending attitude index for the third quarter changed by borrower type as follows: ▲ large corporations -3→-3 ▲ small and medium enterprises (SMEs) 12→-3 ▲ household mortgage -18→-6 ▲ general household 9→-9.

The Bank of Korea explained, "The lending attitude of banks toward households is expected to somewhat strengthen mainly for general household loans due to enhanced credit soundness management and concerns about the deterioration of debt repayment ability among vulnerable borrowers."

Corporate lending attitude is expected to slightly strengthen due to domestic and external economic uncertainties; however, extension and re-acceptance conditions will be operated somewhat more leniently due to the extension of maturity and interest payment deferral measures for SMEs affected by COVID-19, and the expansion of financial support programs for small business owners.

The credit risk perceived by banks for each borrower in the fourth quarter still showed positive (+) values. Banks viewed credit risk for SMEs as high due to ongoing uncertainties in domestic and external conditions and the possibility of deteriorating corporate performance caused by sluggish real economy. For households, credit risk awareness remained high, especially among vulnerable borrowers, due to decreases in household income.

While lending attitudes are strengthening and credit risks are rising, loan demand remains steady. The loan demand index decreased for all borrower types: large corporations (9→6), SMEs (32→24), household mortgage (21→3), and general household (41→29), but maintained positive (+) values.

In the fourth quarter, lending attitudes of non-bank financial institutions, except for credit card companies, are also expected to strengthen, and credit risk is anticipated to increase relatively across all sectors. Loan demand is projected to increase in all sectors.

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