Banks to be more stingy with loans

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Banks to be more stingy with loans

Korean banks are expected to further tighten their grip on loans to small and medium enterprises (SMEs) and households in the second quarter due to their increased credit risks stemming from the euro zone debt crisis and other uncertainties, the central bank said yesterday.

Based on the results of a survey on 16 banks, the Bank of Korea said the index measuring their lending attitude came in at three for the April to June period, compared with seven registered in the previous quarter.

This was the lowest reading since the fourth quarter of 2009, when banks tightened mortgage loans amid the government’s push to curb household debts.

The lower the reading, the more likely that banks will tighten their restrictions on lending. A reading above zero means that the number of banks that will ease lending outnumbers those that plan to stiffen lending criteria.

According to the findings, local lenders are more reluctant to lend money to smaller firms and households. An index gauging lender attitudes on loans to SMEs hit nine for the second quarter, compared with 13 in the previous quarter, with the reading for households dropping to minus six from zero. In contrast, the index for big business rose to six from three in the previous quarter.

Local lenders expected the credit risks of both businesses and households to worsen in the current quarter from three months earlier, with SMEs sustaining the biggest setback.

“Given increased credit risks amid the economic slowdown, local lenders are likely to beef up risk management for loans for smaller firms,” the central bank said.

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