Korean banks tighten lending, credit risks rise for Q3
Korean financial institutions expect to tighten lending standards and see credit risks rise in the third quarter of 2026. The Bank of Korea's latest Loan Officer Survey indicates broad-based tightening across banks and non-bank lenders.
Banks brace for tighter conditions
Domestic banks expect to tighten lending standards for household loans in Q3 2026, with the index for household mortgages at -19 and other household loans at -14. Credit risks are projected to increase for both corporations and households, reflected by corporate credit risk indexes of 8 for large corporations and 25 for SMEs.
Loan demand is anticipated to rise for corporate loans and unsecured household loans, while demand for household mortgage loans is expected to decrease.
The survey, conducted from June 4 to June 17, 2026, covered 18 domestic banks and 185 non-bank financial institutions.
The lending index, ranging from -100 to +100, indicates a tightening of standards when negative and an increase in risk or demand when positive.
Non-banks follow suit
Non-bank financial institutions, with the exception of credit card companies, also anticipate tightening lending standards in Q3 2026.
Credit risks are expected to increase across all non-bank sectors.
Loan demand forecasts vary, with mutual savings banks and life insurance companies expecting an increase, while mutual credit cooperatives and credit card companies project a decrease.
The survey gathered actual developments for Q2 2026 and outlooks for Q3 2026, covering items such as lending standards, credit risk, and demand for loans.
The total loan balances for banks and non-banks stood at KRW 2,503 trillion and KRW 932 trillion, respectively, as of March 2026.
A cautious turn for credit
The survey results paint a clear picture of increasing caution within the Korean financial sector.
This broad-based tightening of lending standards and rising credit risk expectations suggest a proactive stance by institutions in anticipation of potential economic headwinds.
While demand for some loan types persists, the overall outlook points to a more constrained credit environment for the coming quarter.