By Yoon Ja-young
Staff Reporter
Households and businesses are expected to suffer a serious credit squeeze in the fourth quarter as banks are set to tighten loan regulations.
According to the Bank of Korea's survey on senior loan staff at 16 banks, Monday, their lending practice index for the fourth quarter stood at minus 27, worsening from minus 22 in the third quarter and minus 13 in the second. A reading below zero means banks are tightening their supply of credit.
The move will be especially tight for small businesses.
The lending practice index for small firms recorded minus 41, the worst figure since 1999 when the central bank started compiling such data.
The figure for household loans slightly worsened to minus 9 from minus 6, and the screening for large businesses is also expected to get stricter as their index fell to minus 28. Banks will be either levying higher interest rates or refraining from extending loans.
The tightening of credit follows growing uncertainties in the economy and liquidity difficulties.
The credit risk index for small and medium-sized businesses continued to rise to 50 in the fourth quarter, from 47 in the third quarter and 34 in the second. It is the highest level since fall 2003 when a credit squeeze heightened due to the collapse of the credit card bubble. ``The default rate among businesses sensitive to the economy such as construction, retail and wholesale, or restaurants and lodging, is rising. Banks expect bad loans to increase among small businesses,'' the central bank said.
The credit risk estimation for households also rose to 28 from 22 in the previous quarter. Households' ability to shoulder loans is expected to worsen due to inflation and rising interest rates.
The demand for loans, meanwhile, will rise. Banks estimated demand to rise especially among small firms, as they have to make up for a liquidity crunch following a slowdown of sales and increasing inventory.
However, the squeeze of credit amid the economic slowdown is expected to further hamper economic recovery, as it will lead to lower employment and smaller investments.