Banks forecast to tighten mortgage lending in Q4

South Korean banks are expected to further tighten their grip on mortgage loans in the fourth quarter amid the financial watchdog's push to curb growing household debt, the central bank said Wednesday. An index gauging lender attitudes on mortgage loans came in at minus 28 for the October-December period, compared with minus 25 tallied in the third quarter, according to a survey of 16 lenders conducted by the Bank of Korea (BOK). The fourth-quarter data marked the lowest level since the index reached minus 41 in the first quarter of 2007, it added. The lower the reading, the more likely that banks will tighten their restrictions on lending. A reading below zero means that the number of lenders that will tighten their grip on lending surpasses that of banks planning to ease lending criteria. "Affected by the regulator's move to stem household debt, lenders are expected to further stiffen their grip on mortgage loans," said Shin Hyeong-wook, deputy director general of the BOK's financial stability analysis team. South Korea is grappling with growing household debt on concerns that households' high indebtedness is feared to curb consumer purchasing power, hurting the economic growth. In June, the Financial Services Commission unveiled a set of measures to curb household debt, which reached 876.3 trillion won (US$734.1 billion) as of end-June. But despite such steps, the growth of household loans accelerated in July and August, prompting the regulator to strongly warn local banks. Several major banks halted the extension of fresh home loans in mid-August. Local banks expect households' credit risks to climb in the fourth quarter on fears about households' capacity to service debt, the BOK said. An index measuring households' credit risks, or the likelihood of borrowers being unable topay back debt, came in at 9 for the fourth quarter, up from 3 recorded three months earlier. Meanwhile, local banks are projected to be less lenient against smaller firms in the upcoming quarter as lenders are beefing up risk management amid high external economic risks. An index measuring banks' lending attitudes for smaller companies reached 13 for the fourth quarter, down from 19 tallied in the third quarter. It marked the lowest level since the index reached 9 in the third quarter of 2010, the BOK said. Local banks forecast credit risks for small and medium enterprises to rise in the fourth quarter as lackluster domestic demand and economic uncertainty will likely lead to business setbacks. An indicator gauging SMEs' credit risks came in at 19 for the October-December period, up from 9 tallied three months earlier and the highest level since the second quarter of last year.