It is expected that South Korean banks will be stricter on their screening process regarding mortgage loans starting from the second quarter. It seems that credit risks of households will rise due to price reduction in housing and limited improvement in household income.
According to a survey announced by The Bank of Korea regarding financial agencies’ practices towards loans, estimated value of lending practices index of South Korean banks towards housing during this second quarter is set at -13.
Lending practices index is expressed as a value between -100 and 100 and it is largely based on lending practices and credit risks. If index is a negative value, this indicates that many financial agencies will tighten up their screening process on loans in the future.
This value is based on surveys done by The Bank of Korea on financial agencies’ personnel responsible for loans between the 25th of February and 15th of March.
-13 is lower than the actual lending practices index from previous quarter (-3) and it is contrast to how lending practices index towards general households increased from -3 to 0.
“It is expected that screening process on mortgage loans will be stricter as regulations have become stricter as part of solutions towards household debts and as real estate economy has been slumping.” said a representative for The Bank of Korea.

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Lending practices towards small and medium businesses have eased since the first quarter. Estimated lending practices index in the second quarter is same as the actual lending practices index of the first quarter (17). This is because South Korean Government has vitalized financial incentives towards small and medium businesses and is planning to apply new loan-deposit ratio starting from 2020.
It is expected that threshold of loan screening by non-banking financial institutions excluding credit card companies will also be higher. Estimated lending practices indexes of mutual financial unions, mutual savings banks, and life insurance companies are -31, -16, and -6 respectively.
It is expected that credit risks by both banking institutions and non-banking institutions will increase slightly.
Estimated value of household credit risks of South Korean banks is 10 and this is the result of price reduction in housing and no sign of improvement in household income.
Credit risk values of major corporations and small and medium businesses were 7 and 20 respectively due to slow growth of major countries and increased burden from repayment of principles resulting from poor performance.
It is estimated the credit risk values of non-banking institutions will also go up in every industry. Mutual financial unions, life insurance companies, and mutual savings banks show credit risk values of 31, 21, and 20 respectively resulting from possibilities of reduction in mortgage values and reduced abilities by owners to repay debts.
Staff Reporter Ham, Jihyun | goham@etnews.com