Boost Bank, Household & SME Loans
- SEOUL, south Korea – South Korean banks are expected to further tighten their lending practices toward households and small-to-medium enterprises (SMEs), while non-bank financial institutions are also projected...
- According to the Bank of Korea's (BOK) second-quarter 2025 financial institution loan behavior survey, released Monday, lending officers at banks and credit card companies anticipate a somewhat strengthened...
- The overall bank lending attitude index registered -6 for the second quarter.A negative index indicates a tightening of lending practices, suggesting banks will likely reduce loan activity.
South Korean Banks Tighten Lending to Households, SMEs
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SEOUL, south Korea – South Korean banks are expected to further tighten their lending practices toward households and small-to-medium enterprises (SMEs), while non-bank financial institutions are also projected to maintain stricter loan standards across all sectors.
Bank of Korea Survey Indicates Cautious Lending Approach
According to the Bank of Korea’s (BOK) second-quarter 2025 financial institution loan behavior survey, released Monday, lending officers at banks and credit card companies anticipate a somewhat strengthened lending attitude by domestic banks toward SMEs and households during the period.
The overall bank lending attitude index registered -6 for the second quarter.A negative index indicates a tightening of lending practices, suggesting banks will likely reduce loan activity. The index remained negative in the third and fourth quarters of last year before briefly turning positive to 7 in the first quarter of 2025.
Household Lending Faces Increased Scrutiny
Specifically, the survey indicated a more cautious approach to household housing loans. the household housing loan attitude index fell from 14 in the first quarter to -22 in the second quarter. Similarly, the general household loan attitude index moved from 8 in the first quarter to -8 in the second quarter.
The BOK attributed the expected tightening of household loans to government efforts to manage household debt. The government announced household debt management plans on March 19, following an initial proclamation on Feb.27.
SMEs Also Face Lending Constraints
While lending to large corporations remained positive, SMEs experienced a shift from a neutral stance to a more restrictive one. The lending attitude toward large corporations remained at 3, consistent with the previous quarter. However, lending to SMEs moved from 0 to -6.
The BOK noted that the strengthened lending attitude, notably toward vulnerable sectors, reflects concerns about credit soundness amid increasing uncertainty in both the domestic and global economic landscapes.
Loan Demand Expected to Rise
Despite the tighter lending surroundings,demand for household loans is expected to increase for both housing and general purposes,driven by rising housing transactions and a decline in existing credit loans. The household housing and household loan demand indexes registered 6 and 14, respectively.
Demand for corporate loans is also projected to rise due to the need for operating funds amid ongoing economic uncertainty. The demand index for large and SME lending stood at 11 and 25, respectively. Though, the BSI’s Economic Survey Index (BSI) for April indicated a decline of one point and three points in the manufacturing and non-manufacturing sectors, respectively.
Credit Risk Concerns Persist
credit risk is anticipated to increase for both large corporations and SMEs. As of December of last year, the delinquency rate for loans exceeding one month at domestic banks was 0.62% for smes overall. The construction industry reported a delinquency rate of 1.05%, while the wholesale and retail sectors recorded 0.86%. the manufacturing industry’s delinquency rate was 0.7%.
Concerns about household credit risks and reduced debt repayment ability are expected to maintain credit alertness. Delinquency rates for domestic banks’ credit loans and mortgages rose from 0.62% and 0.24% in June of last year to 0.83% and 0.29% in February of this year.
Non-Bank Financial Institutions Follow Suit
Non-bank financial institutions, including mutual savings banks and saemaul Undong, are also expected to maintain their strengthened lending attitudes.The BOK anticipates these institutions will prioritize asset soundness management due to high-end risks and elevated delinquency levels.
Demand for non-bank financial institution loans is projected to increase slightly, primarily for corporate operating funds and household living expenses. However, credit risks are expected to remain high due to potential profitability declines stemming from debt-oriented lending to low-credit and low-income families, coupled with a lack of corporate earnings.
South Korean Lending Trends: Your Questions Answered
Q: What’s happening with lending in South Korea?
A: South Korean banks are tightening their lending practices, particularly towards households and small-to-medium enterprises (SMEs). Non-bank financial institutions are also expected to maintain stricter loan standards. This shift reflects concerns about credit soundness amid economic uncertainty.
Q: What’s the overall outlook for bank lending in South Korea?
A: According to the Bank of Korea’s (BOK) second-quarter 2025 financial institution loan behavior survey,banks anticipate a more cautious approach to lending. The overall bank lending attitude index registered -6 for the second quarter, indicating a tightening of lending practices.
Q: How is household lending being affected?
A: Household housing loans are facing increased scrutiny. The household housing loan attitude index fell from 14 in the first quarter to -22 in the second quarter. The general household loan attitude index also declined, moving from 8 in the first quarter to -8 in the second quarter. This tightening is attributed to government efforts to manage household debt, following debt management plans announced on March 19, building upon an initial declaration on Feb. 27.
Q: Are SMEs also facing lending constraints?
A: Yes, SMEs are experiencing a shift towards more restrictive lending. While lending to large corporations remained positive, according to the BOK survey, lending to SMEs moved from 0 to -6. This reflects concerns about credit soundness, particularly in vulnerable sectors.
Q: Despite tighter lending, is loan demand expected to shift?
A: Yes, despite the tighter lending environment, demand for both household and corporate loans is expected to rise.Demand for household loans for housing and general purposes is projected to increase, with indexes of 6 and 14, respectively. Corporate loan demand is also expected to increase due to the need for operating funds amid economic uncertainty, with the indices for large and SME lending standing at 11 and 25, respectively.
Q: What are the main factors driving the changes?
A: Key factors include:
Government efforts to manage household debt.
Concerns about credit soundness in the face of economic uncertainty, both domestically and globally.
Q: Are credit risks increasing?
A: Yes,credit risk is anticipated to increase for both large corporations and SMEs. Delinquency rates are a critically important concern.
Q: What about delinquency rates?
A: As of December last year, the delinquency rate for loans exceeding one month at domestic banks was 0.62% for SMEs overall. The construction industry had a delinquency rate of 1.05%, the wholesale and retail sectors 0.86%, and the manufacturing industry 0.7%. Concerns about household credit risks also persist, as delinquency rates for domestic banks’ credit loans and mortgages rose from 0.62% and 0.24% in June of last year to 0.83% and 0.29% in February this year.
Q: What are non-bank financial institutions doing?
A: Non-bank financial institutions,including mutual savings banks and saemaul Undong,are also expected to maintain strengthened lending attitudes. The BOK anticipates they will prioritize asset soundness management due to high-end risks and elevated delinquency levels.
Q: What’s the outlook for non-bank financial institution loans?
A: Demand for non-bank financial institution loans is expected to increase slightly, primarily for corporate operating funds and household living expenses. However, credit risks are expected to remain high due to potential profitability declines, stemming from debt-oriented lending to low-credit and low-income families, coupled with a lack of corporate earnings.