New Year Bank Loans Easier Than Last Year... Household Credit Risk Grows Larger

Q1 2022 Financial Sector Loan Attitude Outlook

The era of near-zero interest rates that began after the COVID-19 crisis has come to an end after 1 year and 8 months. On the 25th, the Monetary Policy Board of the Bank of Korea held a meeting to decide on monetary policy direction and raised the base interest rate by 0.25 percentage points from 0.75% to 1%. The photo shows a loan-related notice posted on the exterior wall of a bank in downtown Seoul on the same day. Photo by Moon Honam munonam@

[Asia Economy Reporter Jang Sehee] The threshold for household bank loans is expected to be lower in the first quarter of this year compared to last year.

According to the "Financial Institution Lending Behavior Survey Results" announced on the 17th by the Bank of Korea, which surveyed a total of 203 financial institutions including 17 domestic banks and 26 mutual savings banks, the lending attitude of domestic banks toward households in the first quarter was -6. This is 35 points higher than -41 in the previous quarter. The more negative the number, the higher the lending threshold of financial companies.

An official from the Bank of Korea stated, "Although household loan regulations themselves continue, since it is the beginning of the year, there is more lending capacity compared to the previous quarter," and added, "It seems that banks are generally taking a less tightened stance than before." Despite the household loan management policy having been significantly tightened for two consecutive quarters, a wait-and-see stance is expected at the beginning of the year.

The lending attitude index for general household funds recorded -29 in the third quarter and further tightened to -41 in the fourth quarter.

Additionally, lending attitudes toward companies are expected to ease somewhat. For large corporations, the index rose from 0 to 6, while for small and medium-sized enterprises (SMEs), it remained stable. The Bank of Korea analyzed that while lending to large corporations eased due to expectations of improved business performance compared to the previous quarter, caution regarding the potential realization of borrowers' credit risk ahead of the end of financial support measures affected SMEs.

Household credit risk is expected to increase further. The credit risk index, which reflects concerns that banks may suffer losses from lending, rose to 16 from 11 in the previous quarter. The Bank of Korea stated, "Credit risk is expected to increase compared to the previous quarter due to the prolonged COVID-19 pandemic weakening the repayment ability of vulnerable borrowers and the increased interest burden caused by rising loan interest rates."

Meanwhile, in the corporate sector, no significant easing is expected for large corporations, whereas the credit risk index for SMEs rose to 18 from 12 in the previous quarter.

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