Bank of Korea survey: Banks to ease lending, non-banks to tighten in Q1 2026
The Bank of Korea's Loan Officer Survey for Q4 2025 and Q1 2026 indicates that domestic banks expect to slightly ease lending standards. Non-bank financial institutions anticipate a continued tightening stance, though with a slight moderation, while credit risks persist.
Banks prepare to ease credit, but SME risks persist
Domestic banks are expected to slightly loosen their lending standards in the first quarter of 2026 compared to the previous quarter, according to the Bank of Korea's latest Loan Officer Survey.
This general easing trend reflects a more accommodating approach to credit provision.
However, the survey highlights that credit risks are expected to persist, primarily concentrated among small and medium-sized enterprises (SMEs).
Despite these ongoing risk concerns, demand for loans is projected to rise across all corporate and household sectors.
This indicates a broader appetite for credit from both businesses and households, suggesting a potential increase in economic activity or financing needs in the upcoming quarter.
Non-banks remain cautious, easing tightening slightly
In contrast to domestic banks, non-bank financial institutions are expected to maintain a generally tightening stance in the first quarter of 2026. However, the survey indicates a slight easing in the level of tightening compared to the previous quarter, suggesting a marginal shift towards less stringent conditions.
Despite this slight moderation, credit risks are anticipated to remain a persistent concern across all types of non-bank financial institutions, underscoring continued vigilance in the sector.
Similar to banks, demand for loans is projected to increase across most non-bank financial institutions, reflecting a consistent trend in borrowing appetite across the broader financial landscape.
Mixed signals for Korea's credit landscape
The survey presents a nuanced picture of Korea's credit landscape, with domestic banks showing a willingness to ease standards while non-banks remain largely cautious.
This divergence suggests a selective approach to risk, reflecting underlying uncertainties in specific sectors, particularly among SMEs.
The persistent credit risks, coupled with rising loan demand, indicate a delicate balance for financial stability.