Korean banks are expected to further tighten their grip on loans to small and medium enterprises and households in the second quarter due to their increased credit risks stemming from the eurozone debt crisis and other uncertainties, the central bank said Tuesday.

Based on the results of a survey on 16 banks, the Bank of Korea said the index measuring their lending attitude came in at three for the April-June period, compared with seven registered in the previous quarter.

The reading marked the lowest since the fourth quarter of 2009 when banks tightened mortgage loans amid the government‘s push to curb household debts.

The lower the reading, the more likely that banks will tighten their restrictions on lending. A reading above zero means that the number of banks that will ease lending outnumbers those that plan to stiffen lending criteria.

According to the findings, local lenders are more reluctant to lend money to smaller firms and households.

An index gauging lender attitudes on loans to SMEs reached 9 for the second quarter, compared with 13 in the previous quarter, with the reading for households dropping to minus 6 from zero. In contrast, the index for big business rose to 6 from 3 in the previous quarter.

Local lenders expected the credit risks of both businesses and households to worsen in the current quarter from three months earlier, with SMEs sustaining the biggest setback.

“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.

Economic uncertainties, coupled with Europe’s sovereign debt crisis, are likely taking a toll on small and medium firms that supply products to exporters, the central bank said.

Also, local lenders are cautious lending to households as the government is struggling to combat snowballing household debt, which has become a source of headaches for South Korean policymakers, it said. (Yonhap News)