[THE INVESTOR] Amid a government move to curtail the surge in household debt, demand for fresh loans from major commercial banks in Korea is expected to shrink in the third quarter, a poll showed on July 5.

The overall index measuring demand for fresh bank loans came to 9 for the July-September period, down from 10 in the previous quarter, according to the Bank of Korea .

A reading above zero means bank lending will continue to increase, while a reading below the benchmark means demand will likely shrink.



The quarterly reading is based on a survey of 15 local banks, conducted between May 30 and June 10.

The anticipated decline in demand for fresh loans from commercial banks apparently comes as the government is moving to tighten conditions for fresh household loans.

Such a move comes as the country’s household debt has been gaining at a record pace, reaching an all-time high of 1,223.7 trillion won (US$1.06 trillion) as of end-March.

“A majority of respondents expected demand for home-backed loans to shrink due to the expansion of government measures to limit household debt increases,” the BOK said in a press release.

People are apparently flocking to non-bank financial institutions for fresh loans.

A separate index measuring demand for fresh loans from local savings banks came to 14 for the third quarter, compared with 11 for the previous quarter. An index for credit card firms also jumped to 25 from 19 over the cited period.

Demand for fresh loans from local companies, on the other hand, is expected to continue growing in the third quarter, with the index measuring the demand for small and medium-sized firms coming to 28 for the July-September period, up from 22 for the second quarter.

Banks, however, are expected to reduce their lending to local companies as they forecast a significant rise in credit risks of local firms.

Both indexes measuring credit risks of large and smaller firms came to 38, up from 28 and 34 in the previous quarter, respectively.

(theinvestor@heraldcorp.com)