Commercial Banks Lower Household Loan Threshold... Easing Policy in Q1

Bank of Korea Survey:
Non-bank Financial Institutions Remain "Strict"

The lending stance of commercial banks toward households is expected to ease somewhat in the first quarter. The lending stance of non-bank financial institutions is expected to maintain a tightening trend.

According to the 'Financial Institution Lending Behavior Survey Results' released by the Bank of Korea on the 14th, a survey was conducted targeting credit officers of domestic financial institutions such as banks and credit card companies. The lending stance of domestic banks in the first quarter is expected to tighten for corporations and ease somewhat for households.

The composite lending stance index for domestic banks in the first quarter was -1, easing from the previous quarter's (-27). The more negative the index, the more respondents indicated a tightening of lending stance.

For large corporations, the index was -3, and for small and medium-sized enterprises (SMEs), it was also -3, maintaining the expectation of a tightening lending stance. The Bank of Korea explained that corporate lending was tightened due to capital adequacy management amid increased uncertainty in domestic and international financial and economic conditions, and credit soundness management focused on vulnerable sectors such as real estate and construction.

For households, the lending stance for housing was 6, significantly easing from the previous quarter's (-42), and the general household lending stance was 3, also easing from the previous quarter's (-39). Household loans are expected to ease somewhat in areas such as living stabilization funds, mortgage loans for actual housing demand, and non-face-to-face credit loans.

In the first quarter, corporate credit risk is expected to remain at a high level, especially among SMEs, due to continued sluggish business conditions and worsening financial situations. The composite credit risk index for the first quarter recorded 34, up from 28 in the previous quarter. The credit risk for large corporations rose to 28 from 11 in the previous quarter, and for SMEs, it increased to 39 from 33. The more positive the index, the more respondents indicated an increase in credit risk.

Household credit risk rose to 28 from 22 in the previous quarter. The Bank of Korea stated that concerns about household credit risk are expected to continue due to delayed income improvement and ongoing debt repayment burdens.

Loan demand in the first quarter is expected to increase for both corporations and households. The loan demand index for large corporations rose to 17 from 0 in the previous quarter, and for SMEs, it increased to 31 from 8. The loan demand index for general households rose from 6 to 19, and for household housing loans, it increased from 8 to 14. The Bank of Korea explained that corporate loans are expected to increase mainly among SMEs due to increased working capital needs amid domestic and international economic uncertainties and sluggish business conditions, and household loans are expected to increase in both housing and general categories.

Non-bank Financial Institutions Maintain Tightening Lending Stance

The lending stance of non-bank financial institutions is expected to maintain a tightening trend except for credit card companies, which are expected to remain neutral. This is anticipated as asset soundness management will continue to be strengthened due to expanding downside risks to the economy and persistently high delinquency rates.

Credit risk among non-bank financial institutions is expected to remain high across most sectors. This is mainly due to concerns about deteriorating asset soundness related to loans to vulnerable borrowers such as low-credit and low-income groups and real estate-related loans.

The Financial Institution Lending Behavior Survey is conducted on 203 financial institutions, including banks and credit card companies. It investigates trends over the past three months and outlooks for the next three months regarding lending stance, credit risk, and loan demand of financial institutions.

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