"Household and Corporate Credit Risk Increases in Q2"…Bank Loan Thresholds Decrease ↓

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Financial institutions, including commercial banks, expect credit risks for corporations and households to increase in the second quarter.

According to the results of the 'Financial Institution Lending Behavior Survey' announced by the Bank of Korea on the 26th, the credit risk index forecasted by domestic banks for the second quarter was 35, up 2 points from the previous quarter (33). Compared to the first quarter of last year (12), it is nearly three times higher.

This index is calculated as a weighted average evaluation of credit risk, financial institutions' lending attitudes, and loan demand, ranging between 100 and -100. If the index is positive (+), it means that the number of financial institutions responding with 'increase (credit risk or loan demand)' or 'easing (lending attitude)' was greater than those responding with 'decrease' or 'tightening.'

Looking at changes in the credit risk index by lending entity, both households (42) and small and medium-sized enterprises (SMEs) (28) rose by 3 points compared to the first quarter. Large corporations (6) showed no change in credit risk.

The Bank of Korea explained, "Corporate credit risk is expected to expand mainly among SMEs due to the slowdown in the real economy, deterioration in debt repayment ability of some vulnerable industries, and small self-employed businesses."

The loan demand index for the second quarter was recorded at 0, down 4 points from the first quarter (4). This indicates that expectations for increases and decreases in loan demand were balanced.

For households, the contraction in demand for housing loans increased (-3 → -6), while demand for general loans remained the same (-11 → -11). For SMEs, it decreased from 6 to 0, whereas for large corporations, it rose from 3 to 8.

The Bank of Korea stated, "In the second quarter, large corporations are expected to see a slight increase in loan demand due to concerns over economic slowdown and worsening conditions for corporate bond financing. Meanwhile, loan demand from SMEs and households is likely to remain unchanged or decrease due to rising interest rates and sluggish housing transactions."

The lending attitude index of banks for the second quarter was 8, down 3 points from the first quarter (11). The Bank of Korea analyzed that competition among banks to secure corporate loans and the easing of loan regulations for multi-homeowners had an impact.

Non-bank financial institutions such as savings banks also forecast increased credit risks for borrowers in the second quarter. By sector, the credit risk indices for the second quarter significantly exceeded the neutral level (0) at mutual savings banks (40), credit card companies (14), mutual finance cooperatives (43), and life insurance companies (34).

Meanwhile, this survey was conducted from the 10th to the 21st of last month targeting the chief loan officers of 204 financial institutions (18 domestic banks, 26 mutual savings banks, 8 credit card companies, 10 life insurance companies, and 142 mutual finance cooperatives).

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