S.Korean banks to tighten lending standards in Q1: survey

South Korean banks are expected to tighten lending standards in the first three months on the expected worsening of corporate earnings and the already massive household debts, a central bank survey showed on Wednesday.

The lending attitude index, which reflects banks' attitude toward lending to households and companies, came in at minus 19 in the January-March quarter, according to the Bank of Korea (BOK).

The reading below zero means more banks are willing to tighten loan standards rather than ease. It is based on a survey conducted between Nov. 28 and Dec. 9 of a combined 199 financial institutions including banks.

The lending attitude stayed below zero since the fourth quarter of 2015 as concerns spread about the worsening of debt-servicing capability among households due to economic slowdown and fast-rising mortgage loans.

The household debts kept a record-breaking trend and rose at a fast clip as the BOK cut its benchmark rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June 2016.

The government eased regulations on mortgage financing, speeding up an increase in the home-backed loans. It fueled worry about the bubble forming in the real estate market.

As the U.S. Federal Reserve heralded three rate hikes this year, lending rates in South Korea would be put under upward pressures, resulting in heavier debt-servicing burden for households.

The lending attitude index for mortgage loans to households tumbled to minus 30, with the index for credit loans to households standing at minus 10.

The reading for corporate loans came to minus 13 for the first quarter on the expected fall in corporate earnings and the lingering economic uncertainties at home and abroad.

The credit risk index for households surged to 37 in the first quarter from 13 in the previous quarter, indicating that banks see a higher probability for households to go bankrupt. Endit