South Korean banks to tighten fresh lending in Q3

Rising household credit risks and tougher lending rules put a damper on lenders’ plans.

South Korean banks signalled that they will be tightening their grip on fresh loans in the third quarter of the year amidst tougher lending rules and rising household credit risks, reports Yonhap, based on a central bank poll.

The Bank of Korea (BoK) said its index measuring the banks' attitude toward fresh lending stood at minus 3 for the July-September period, from a positive 7 for the previous quarter. A reading below zero means that the number of banks that will restrict lending surpasses those that plan to ease lending criteria.

The outlook comes as household credit risks are projected to rise in Q3 amidst the continued economic fallout from the pandemic. The indicator for households' credit risks reached 18 in the current quarter, up from only six in the second quarter.

Local lenders forecast credit risks of households and smaller firms, or the likelihood of borrowers being unable to repay debt, to increase in the third quarter from three months earlier, the BoK said.

The index for overall credit risks came to 18 for the current quarter, compared with 10 for the previous three months. 

On the other hand, the credit risks of large companies are projected to lessen in the current quarter on the back of a projected recovery in exports and an expected improvement in their profits.