bank lending-Q2 outlook

SEOUL, April 3 (Yonhap) -- South Korean banks are likely to be lenient toward smaller firms in the second quarter in line with the government's push to increase financing to smaller companies, although credit risks still run high, the central bank said Wednesday.

An index gauging lending attitudes toward small and medium enterprises (SMEs) came in at 9 for the April-June period, unchanged from the previous quarter, according to a survey of 16 local banks conducted by the Bank of Korea (BOK).

The lower the reading, the more likely banks will tighten their restrictions on lending. A reading above zero means that the number of lenders that will ease lending criteria surpasses that of banks planning to restrict lending.

"As the regulator is encouraging local banks to increase lending to SMEs, lenders are expected to keep their lenient lending attitude for the current quarter," said an official at the BOK.

President Park Geun-hye, who took office in late February, vowed to support smaller firms and debt-ridden households. The country's financial regulator said it will revamp the country's policy lending system to help SMEs raise necessary funds more easily.

Reflecting optimism about the economic recovery, loan demand by smaller firms is likely to increase in the second quarter, the BOK said.

An index measuring SMEs' loan demand came in at 25 for the second quarter, up from 16 in the previous quarter and the highest tally in a year.

But local banks' softened lending attitude comes even as smaller firms' credit risks, or the likelihood of borrowers being unable to repay debt, are likely to hit a four-year high in the second quarter, data showed.

An index measuring SMEs' credit risks came in at 34 in the cited period, unchanged from the first quarter and the highest since 41 tallied for the second quarter of 2008.

Meanwhile, South Korean banks see still-high credit risks for households as anticipation of falling housing prices and the economic downturn are raising concerns about households' debt-serving capacity, the BOK said.

An index measuring households' credit risks came in at 22 in the second quarter, down from 28 for the first quarter.

Banks expect households' loan demand to spike in the current quarter on the back of the government's measures to boost the slumping property market, it added.

An index gauging households' loan demand came in at 16 in the second quarter, the highest level since the first quarter of 2011.

Korea's household credit totaled a record 959.4 trillion won (US$854.6 billion) as of end-2012. Households' high indebtedness is feared to crimp their purchasing power, curbing economic growth.

<All rights reserved by Yonhap News Agency>