South Korean banks plan to increase lending for smaller firms by 34.6 trillion won ($32.5 billion) this year, as their funding demand is expected to rise upon a moderate economic recovery, the financial regulator said Thursday.

Local banks have recently notified the Financial Services Commission, the country’s financial watchdog, of their lending plan for small and medium enterprises in 2014, the FSC said in a press release.

The amount of increase is up 25.4 percent from the 27.6 trillion won banks offered to smaller businesses last year, FSC data showed.

Commercial banks will expand fresh SME loans by 6.9 trillion won to 27.3 trillion won this year from a year earlier, while state-run lenders are planning a slight increase to 7.3 trillion won in the same period, compared with 7.2 trillion won in the previous year.

The FSC cited a rosier outlook for the South Korean economy as the primary reason for banks’ increase in SME loans, as more firms will likely seek ample funds for investment on a pickup in demand.

The finance ministry forecasts the economy, Asia’s fourth-largest, will grow at a faster clip of 3.9 percent in 2014, from a 2.8 percent expansion estimated for last year.

The banks’ move also comes as part of an effort to be in line with President Park Geun-hye’s policy toward “the financially vulnerable.” Expanding support for smaller firms has been one of her key pledges since she took office in February last year.

That explains the sudden hike of SME loans from the banking sector in 2013, which more than quadrupled from 6.5 trillion won for 2012.

The fresh liquidity supply, if fully extended, is expected to raise the outstanding amount of SME loans to 523.5 trillion won in the market by the end of this year from 488.9 trillion won a year ago, the FSC added.(Yonhap News)