Banks' lending thresholds are expected to remain high in the fourth quarter as well. For household loans, the intensity of tightening is expected to ease, while for corporate loans, screening is expected to become stricter for both large companies and small and medium-sized enterprises.
According to the results of the "Survey on Lending Behavior of Financial Institutions" released by the Bank of Korea on the 26th, the composite lending attitude index of domestic banks for the fourth quarter came in at -11, continuing a negative trend. The survey was conducted among loan officers at financial institutions. An index below 0 means more institutions plan to "tighten" lending than "ease" it.
The household sector is expected to continue tightening but at a slower pace. The household housing loan index is forecast to rise from -17 in the third quarter to 0 in the fourth, staying at the previous quarter's level. The household general loan index also rose from -28 to -8 over the same period, narrowing the degree of tightening. One reading is that banks are likely to moderate the pace rather than raise already high lending thresholds further.
The situation is different for corporate loans. The lending attitude index for large companies was positive from the fourth quarter of last year through the second quarter of this year and held at the previous quarter's level in the third quarter, but in the fourth quarter it came in at -8, turning toward tightening. The index for small and medium-sized enterprises turned negative at -19 in the third quarter and stayed at -19 in the fourth, suggesting lending attitudes will be stricter than in the previous quarter.
A BOK official explained, "For corporate loans, attitudes toward both large companies and SMEs are expected to tighten as asset quality has recently shown a deteriorating trend amid high external uncertainty." Regarding household loans, the official said, "After the Aug. 13 real estate measures secured banks' lending capacity, housing-related loans are expected to stay at the previous quarter's level, while credit loans and others are still expected to continue the tightening trend."
For the fourth quarter, loan demand from companies is expected to be broadly similar to the previous quarter, while household demand is expected to increase, centered on housing-related loans. The composite loan demand index of domestic banks was 6, pointing to an increase following the previous quarter (13). Among companies, demand from large firms (3) is expected to rise somewhat owing to moves to secure liquidity ahead of external uncertainty and the impact of higher corporate bond yields, while SMEs (0) are expected to remain at a level similar to the previous quarter. For households, housing-related loans (14) are expected to keep increasing while general loans (3) are also seen rising slightly.
Domestic banks expect credit risk for both companies and households to rise in the fourth quarter. The composite credit risk index was 29, up from 26 in the previous quarter. The index for SMEs was 31, down from 33 in the previous quarter, but still higher than for large companies and households. The index for large firms rose from 3 to 6, and for households from 19 to 28.
Non-bank financial institutions in all sectors except credit card companies are expected to become stricter in lending attitude than in the previous quarter. Mutual savings banks (-10), mutual financial cooperatives (-31) and life insurers (-3) forecast tightening. Credit card companies went from -14 in the third quarter to 0 in the fourth, and are expected to maintain tightening at the previous quarter's level. Credit risk is expected to stay high, centered on mutual financial cooperatives (40), life insurers (20) and savings banks (17). As for loan demand, savings banks and life insurers are expected to see slight increases in both corporate and household demand. By contrast, demand at mutual financial cooperatives and credit card companies is expected to fall owing to higher interest rates and slowing demand for stock investment.
The survey asked 203 financial institutions from the 2nd to the 16th of last month about trends over the past three months and the outlook for the next three months.