Local demand for loans are expected to rise to a 42-month high in the second quarter, but borrowers are likely to see more obstacles in getting such loans, data showed Tuesday.

The Bank of Korea released a survey of 16 banks, showing the tightening lending situation in the domestic financial market at a time when concerns are growing over household debts.

“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.

South Korean banks, the survey suggest, would demand more tough conditions when extending fresh loans to small and medium-sized enterprises in the April-June period, which coincides with the surging demand.

The loan demand index ― a measure of loan demand ― reached 23, the highest since fourth quarter 2008. The higher the index, the bigger the demand for loans.

The BOK said the bulk of the demand would come from smaller firms and households. Some of the companies seemed to hedge against rising oil prices by parking more cash in their reserves, while households are responding to new apartment contracts slated for the current quarter.

In contrast to the stronger demand for loans, lenders remain highly conservative, data showed, particularly concerning cash-strapped SMEs and households.

The index measuring their lending attitude stood at 3 for the April-June period, compared with 7 in the previous quarter. The reading was the lowest since the fourth quarter of 2009.

An index gauging lender attitudes on loans to SMEs reached 9 for the second quarter, down from 13 in the previous quarter. The index for households fell to minus-6 from zero.

The index for big business rose to 6 from 3 in the previous quarter, reflecting the banks’ preference for cash-rich conglomerates in extending new loans.

The outlook for credit risks from the perspective of banks here was negative, projecting that SMEs would face more credit-linked problems.

By Yang Sung-jin
(insight@heraldcorp.com)