In line with the financial authorities' stance on household debt management, banks and other financial institutions are expected to tighten screening for dwellings-related loans in the second quarter of this year. While stronger regulations will slightly curb demand for dwellings loans, demand for unsecured credit is projected to rise as more investors seek funds amid a bull run in Korea's stock market.
According to the "Financial institution lending attitude survey" the Bank of Korea conducted of loan officers at financial institutions on the 21st, the lending attitude index for household dwellings (mortgage loan, jeonse loans, etc.) at 18 domestic banks came in at -8 for the second quarter of this year, tighter than the previous quarter's -6. A deeper negative reading indicates a higher lending threshold. With the financial authorities having signaled additional dwellings loan regulations, banks could tighten lending further.
The lending attitude for general household loans (unsecured loans, overdraft loans) eased to -3 in the second quarter from -8 in the previous quarter, but the tightening trend is expected to continue. The Bank of Korea said, "Under the household debt management stance, loans related to dwellings and unsecured credit are all expected to be tightened."
Nonbank financial institutions such as savings banks, mutual finance institutions, credit card companies, and insurers are expected to maintain elevated lending thresholds as part of soundness management. The lending attitude index for mutual finance institutions was -32 in the second quarter. Savings banks were at -10, credit cards at -7, and life insurers at -11.
Loan demand is forecast to increase across the board except for household dwellings. Corporations are seen needing liquidity due to the Middle East situation, and individuals are expected to require living funds and stock investment funds. The domestic banks' loan demand index for the second quarter was 17, up from 13 in the previous quarter.
Credit risk for corporations and households is projected to rise. Business conditions for corporations have grown more uncertain due to the Middle East situation, and individuals' debt-servicing capacity is judged to be weakening. In the second quarter, the credit risk index for large corporations at domestic banks rose to 25 from 19 in the previous quarter, while the index for small and midsize enterprises increased to 36 from 33.