Bank Loans in Q3 Tighten for Large Corporations... Easing Continues for SMEs and Households

The Bank of Korea Announces Results of Financial Institutions' Lending Behavior Survey

In the third quarter of this year (July to September), domestic banks are expected to raise the lending threshold for large corporations to manage risks, while maintaining a relaxed stance toward small and medium-sized enterprises (SMEs) and households.

According to the "Financial Institution Lending Behavior Survey" announced on the 19th by the Bank of Korea, which surveyed a total of 204 financial institutions including 18 domestic banks and 26 mutual savings banks, the lending attitude index of domestic banks in the third quarter is expected to fall by 1 point to 5, down from 6 in the previous quarter.

The Bank of Korea explained, "For large corporations, lending attitudes are expected to tighten due to risk management following the recent expansion of large corporate lending by banks," adding, "In the case of SMEs, lending attitudes are expected to slightly ease due to some regional banks' strategies to expand loans to SMEs."

In the third quarter, corporate credit risk is likely to increase mainly among SMEs due to vulnerable industries such as construction and accommodation, deterioration in debt repayment ability of small self-employed businesses, and concerns over the end of COVID-19 financial support in September this year. The delinquency rate in the construction industry rose about twofold from 0.33% at the end of 2021 to 0.61% at the end of March, and in the accommodation industry from 0.23% to 0.47% during the same period.

Household credit risk is also expected to rise compared to the previous quarter due to increased interest burdens caused by rising loan interest rates.

Loan demand from corporations in the third quarter is expected to continue increasing as both large corporations and SMEs sustain demand for working capital amid a slowdown in the real economy.

Household loan demand is also expected to increase for both housing and general funds due to a rise in housing sales transactions and supply of pre-sale and move-in units in the second half of the year.

Lending attitudes of non-bank financial institutions are expected to continue tightening in most sectors except for credit card companies. The Bank of Korea stated, "This is mainly due to ongoing concerns about asset soundness and profitability deterioration caused by rising delinquency rates," adding, "On the other hand, credit card companies are expected to maintain the same level of lending attitudes as the previous quarter, moving away from the previous trend of tightening."

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