Banks Say "Will Review Loans More Strictly in Q3"

Financial Institutions Likely to Strengthen Loan Screening in Q3
Bank of Korea Survey on Financial Institutions' Lending Practices

Banks and financial institutions are expected to tighten their lending attitudes toward corporations and households in the third quarter.

According to the "Financial Institution Lending Attitude Survey Results" announced by the Bank of Korea on the 17th, domestic banks' lending attitudes toward both corporations and households are expected to strengthen in the third quarter.

The comprehensive lending attitude index by borrower for domestic banks in the third quarter was -15, showing a stronger intensity compared to -6 recorded in the previous quarter. The more negative the index, the more respondents indicated they would tighten lending attitudes.

For large corporations, the lending attitude index shifted from 3 in the second quarter to -3 in the third quarter, and for small and medium-sized enterprises (SMEs), it moved from -3 to -11, indicating a tightening of lending attitudes. The Bank of Korea explained that this tightening was due to managing credit soundness amid uncertainties in domestic and international economic conditions and poor performance in some cyclical industries.

For households, the lending attitude for housing loans remained at -6, the same as the previous quarter, while general household loans tightened further from -14 to -19. The lending attitude for household housing loans maintains a tightening stance due to concerns over the recent rapid increase in mortgage loans, and general household loans are also expected to tighten due to the implementation of household debt management measures.

Credit risk for corporations and households is expected to decrease compared to the previous quarter but will remain at a high level. The comprehensive credit risk index for the third quarter, as anticipated by domestic banks, dropped to 21 from 30 in the previous quarter. Corporate credit risk remained similar to the previous quarter, but the household credit risk index fell from 31 to 17. However, the Bank of Korea explained that the debt repayment burden for households remains, so a high level of credit risk is expected to persist.

Lending demand from corporations and households is expected to increase further in the third quarter. The comprehensive lending demand index by borrower for domestic banks in the third quarter rose significantly to 15 from 5 in the previous quarter.

This increase is mainly due to household housing loan demand rising sharply from 6 to 19, driven by expectations of a housing market recovery. General household loan demand also surged from -8 to 8. The Bank of Korea stated that household loans are expected to increase in demand for both mortgage loans and credit loans due to expectations of a housing market recovery.

Non-bank financial institutions are also expected to maintain a tightening stance on lending attitudes in most sectors except for credit card companies in the third quarter. Due to persistently high delinquency rates, especially in construction and real estate corporate loans, lending attitudes are expected to continue tightening as part of credit soundness management.

Credit risk for non-bank financial institutions is expected to remain high in most sectors. This is mainly due to concerns about deteriorating debt repayment ability among vulnerable borrowers such as low-credit and low-income groups, as well as credit soundness worries related to real estate loans.

Meanwhile, the Financial Institution Lending Attitude Survey was conducted on 204 financial institutions, including domestic banks, to investigate lending attitudes, credit risk, and lending demand based on trends over the past three months and forecasts for the next three months.