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Banks tipped to tighten grip on loans in Q4 amid pandemic: poll

Economy 12:00 October 12, 2020

SEOUL, Oct. 12 (Yonhap) -- Banks in South Korea are expected to tighten their lending to households and companies in the fourth quarter of the year as credit risks will remain high amid the pandemic-caused economic uncertainty, a central bank poll showed Monday.

The Bank of Korea's index measuring the banks' attitude toward fresh loans came to minus 5 for the October-December period, after hitting zero three months earlier.

It marks the first time that the index fell into negative terrain since the fourth quarter of last year when the reading came to minus 5.

The indicator measuring their attitude to households' non-mortgage loans came to minus 9 in the cited period, a turnaround from 9 three months ago.

The lower the reading, the more likely banks will tighten their restrictions on lending. A reading below zero means that the number of lenders that will restrict lending surpasses that of banks planning to ease lending criteria.

"Banks are expected to tighten lending to households on the need to improve credit soundness and concerns about a fall in debt-serving capacity by borrowers in underprivileged groups," the BOK said in a statement.

This file photo, taken Sept. 18, 2020, shows a bank official explaining lending products to a customer in Seoul. (Yonhap)

Local lenders expected credit risks of households and local businesses, or the likelihood of borrowers being unable to repay debt, to still stay at a high level in the fourth quarter, the BOK said.

The indicator measuring households' credit risks reached 26 in the current quarter, unchanged from three months earlier, while that of smaller firms came to 24, down from 32 in the third quarter.

The survey showed local banks forecast loan demand from households and firms to remain high amid an economic slowdown.

The BOK said smaller firms are forecast to seek to take out loans to secure liquidity while households' demand for non-mortgage loans will increase to fund living costs and avoid tightened regulations on home-back loans.

The indicator measuring the banks' attitude toward fresh loans to smaller firms came to 24 for the fourth quarter, down from 32 three months ago.

The index gauging the lenders' stance toward fresh non-mortgage loans reached 29 in the cited period, compared with 41 in the third quarter, the central bank added.

sooyeon@yna.co.kr
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