SEOUL: Banks in South Korea are projected to maintain tightened lending criteria in the fourth quarter, as indicated by a recent survey conducted by the central bank. This cautious approach comes amid ongoing concerns over high household debts, despite a recent interest rate cut intended to spur economic activity. According to Yonhap News Agency, the survey conducted by the Bank of Korea (BOK) involved 18 banks and revealed an index measuring banks' attitudes toward lending home mortgages at minus 12 for the October-December period. This figure, while slightly improved from the previous quarter's minus 17, remains below zero, indicating that a substantial number of lenders plan to tighten their lending standards further. The survey also highlighted that credit risks for borrowers are expected to remain elevated in the fourth quarter, primarily due to persistent high household debts. Earlier this month, the BOK reduced its key interest rate by a quarter percentage point to 3.25 percent, marking a shift from its previous restrictive stance aimed at controlling inflation. This move follows a series of seven consecutive rate hikes implemented between April 2022 and January 2023 to combat rising inflation in Asia's fourth-largest economy. Despite the recent rate cut, worries persist regarding the impact of still-high household debt levels on financial stability and economic recovery. The central bank's earlier policy measures were part of efforts to curb inflation, but moderating inflation and weakening domestic demand have prompted a reassessment of monetary policy priorities.
