Domestic Banks Lower Household Loan Thresholds and Raise Corporate Loan Standards in Q3

[Asia Economy Reporter Seo So-jeong] Domestic banks are expected to lower the threshold for household loans while becoming stricter on corporate loans in the third quarter of this year.

According to the Financial Institution Lending Behavior Survey by the Bank of Korea on the 11th, the lending attitude index of domestic banks for the third quarter of this year was 6, down 13 points from 19 in the previous quarter.

Looking at the lending attitude index by borrower, household mortgage loans scored 14, down 17 points from 31 in the previous quarter. Household general loans remained the same at 19 as in the previous quarter. The Bank of Korea stated, "For households, a accommodative stance is expected to be maintained in response to the slowdown in household loan growth," but also predicted, "However, due to the expansion of the Debt Service Ratio (DSR) regulations and other factors, the degree of easing in lending attitudes, especially for mortgage loans which involve relatively large loan amounts, is expected to be somewhat reduced compared to the previous quarter."

On the other hand, lending attitudes of domestic banks toward corporations are expected to tighten due to increased uncertainty in domestic and external economic conditions and the need to manage credit soundness. The lending attitude index for large corporations was -6, down 9 points from 3 in the previous quarter, and for small and medium-sized enterprises (SMEs), it was also -6, down 12 points from 6 in the previous quarter.

The credit risk index anticipated by banks for the third quarter was 38, up 12 points from 26 in the second quarter. Looking at changes in the credit risk index by lending entity, the household index rose 17 points to 39 from 22 in the previous quarter. The credit risk indices for large corporations and SMEs increased by 3 points and 6 points respectively, reaching 11 and 31 compared to the previous quarter.

The Bank of Korea said, "Corporate credit risk is expected to continue increasing in the third quarter due to uncertainties in domestic and external economic conditions," adding, "In particular, credit risk for SMEs will rise due to deteriorating debt repayment capacity among some vulnerable industries and small-scale self-employed businesses." It also forecasted that household credit risk will significantly increase due to rising debt repayment burdens caused by higher loan interest rates.

The loan demand index improved by 4 points to -2 from -6 in the previous quarter. Corporate loan demand in the third quarter is expected to maintain the previous quarter's growth level amid ongoing domestic and external economic uncertainties and factors such as contraction in the corporate bond issuance market. Household loan demand is expected to continue declining due to rising loan interest rates.

Non-bank financial institutions such as savings banks are expected to strengthen their lending attitudes in the third quarter, considering increased interest burdens due to rising interest rates and the possibility of worsening income conditions, which will lead to higher credit risk.

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