Banks in South Korea are expected to tighten their lending to households and the small business sector in the first quarter of this year, as credit risks will remain high amid the pandemic, a central bank poll showed Wednesday.

The Bank of Korea's index measuring the banks' attitude toward fresh loans came to minus 8 for the first quarter.

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

"In the first quarter of 2021, it is forecast that domestic banks will moderately tighten their standards on loans, especially to small and medium-sized enterprises (SMEs) and to households," the BOK said in a statement.

Local lenders expected credit risks of households and local businesses, or the likelihood of borrowers being unable to repay debt, to stay at a high level in the first quarter, the BOK said.

"Credit risks at both corporations and at households are expected to rise," it said.

The indicator measuring households' credit risks reached 21 in the current quarter, up from 15 three months ago.

The survey showed local banks forecast loan demand from households and firms to remain high amid an economic slowdown.

The BOK said smaller firms are forecast to seek to take out loans to secure liquidity while households' demand for non-mortgage loans will increase to fund living costs and avoid tightened regulations on home-backed loans. (Yonhap)