Korean banks are likely to tighten their grip on loans in the third quarter as the eurozone debt crisis is upping economic uncertainty, the central bank said Wednesday.

An index gauging lending attitudes reached three for the July-September period, compared with seven tallied in the second quarter, according to a survey of 16 local banks conducted by the Bank of Korea.

The third-quarter data marked the lowest level since the index came in at minus four in the fourth quarter of 2009, it added.

The lower the reading, the more likely banks will tighten their restrictions on lending. A reading below zero means that the number of lenders that will restrict lending surpasses that of banks planning to ease lending criteria.

The central bank said local banks are likely to be more cautious about extending lending as increased economic uncertainty at home and abroad would serve as setbacks for their businesses.

Local banks expect credit risks of households and companies to rise further in the third quarter on concerns that weak domestic demand will hurt smaller firms’ profitability and household debt is on the rise, the BOK said.

An index measuring their credit risks, or the likelihood of borrowers being unable to repay debt, came in at 38 for the current quarter, up from 24 recorded three months earlier.

The figure marked the highest level since the index reached an identical 38 in the first quarter of 2009 when the country was in the midst of the global financial crisis, it added.

Smaller firms are expected to see higher credit risks in the third quarter. An index gauging small companies’ credit risks reached 44, up from 31 tallied in the second quarter. 

(Yonhap News)