Banks Lower Household Loan Thresholds in Q4, Tighten Corporate Loan Standards

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

At the entrance of a commercial bank branch in Seocho-gu, Seoul, there are notices about jeonse deposit loans and credit loans for office workers.
[Image source=Yonhap News]

Domestic banks are expected to lower the threshold for household loans in the fourth quarter of this year while maintaining a strict stance on corporate loans, according to a survey.

According to the results of the Financial Institution Lending Behavior Survey by the Bank of Korea on the 26th, the lending attitude index of domestic banks for the fourth quarter of this year rose by 7 points to 13, compared to 6 in the previous quarter.

The survey was conducted from August 25 to September 16, targeting the chief credit officers of 204 financial institutions.

In this survey, the Bank of Korea calculates an index between 100 and -100 by weighted averaging evaluations of credit risk, financial institution lending attitudes, and loan demand. A positive (+) index means that the number of financial institutions responding that their lending attitude is 'easing' exceeds those responding 'tightening.'

Looking at the lending attitude index by borrower type, household mortgage loans scored 17, up 9 points from the third quarter, and household general loans scored 19, rising 13 points over the same period.

The Bank of Korea explained, "For households, an easing attitude is expected to expand mainly for general funds loans due to intensified competition among financial institutions caused by a slowdown in household loan growth."

On the other hand, the corporate loan attitude index remained negative. For large corporations, it rose 3 points from -6 in the previous quarter to -3, while for small and medium-sized enterprises (SMEs), it remained unchanged at -3.

The Bank of Korea stated, "The lending attitude of domestic banks toward corporations is expected to continue tightening due to the need to manage loan soundness and uncertain domestic and external economic conditions, following the previous quarter."

(Data provided by Bank of Korea)

The credit risk index forecasted by banks for the fourth quarter was 39, up 8 points from 31 in the previous quarter.

The household index rose 9 points to 42, while the credit risk indices for large corporations and SMEs increased by 6 points each to 17 and 31, respectively, compared to the previous quarter.

The Bank of Korea predicted, "Corporate credit risk is expected to continue rising in the fourth quarter due to uncertainties in domestic and external economic conditions," adding, "especially for SMEs, vigilance regarding credit risk is likely to increase due to poor performance and deterioration in the financial soundness of vulnerable companies."

Household credit risk is also expected to rise significantly, continuing from the previous quarter, due to the potential economic slowdown, deterioration in repayment ability of some vulnerable borrowers, and increased interest burden from rising loan interest rates.

The loan demand index improved by 4 points to -6 from -10 in the third quarter. This indicates that while the decline in demand will continue, the extent of the decrease is expected to weaken.

Corporate loan demand is expected to maintain an increasing trend at the previous quarter's level for both large corporations and SMEs, driven by liquidity needs amid ongoing economic uncertainty and continued contraction in the corporate bond issuance market.

Household loan demand is expected to continue declining due to factors such as rising loan interest rates.

(Data provided by Bank of Korea)

Non-bank financial institutions such as savings banks also plan to tighten their lending attitudes in the fourth quarter.

Mutual savings banks and mutual financial cooperatives are expected to strengthen lending attitudes to manage loan soundness amid ongoing domestic and external economic uncertainties and rising delinquency rates. Credit card companies and life insurance companies are also expected to tighten lending attitudes due to strengthened regulations and increased concerns over borrowers' repayment burdens.

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