Demand for bank loans by local companies and households is expected to decrease in the first three months of the year, a survey showed Tuesday.

The overall index measuring demand for bank loans came to 15 for the January-March period, down from 25 for the previous quarter, according to the survey of 15 local banks conducted by the Bank of Korea.

The fall comes as local firms apparently expect worse business conditions down the road, while households expect borrowing rates to go up as well.

"Demand for loans by large companies is expected to grow only slightly due to an increase in financing through their own means, such as bond issuances," the BOK said in a press release. "The demand from small and medium-sized firms is expected to maintain an upward tendency as the companies see a need to secure funds amid growing uncertainties."

The index measuring large companies' demand for bank loans came to 3 for the first quarter, compared with 6 for the previous quarter. The index for smaller firms moved down to 25 from 28 over the cited period.

The index measuring demand for bank loans by households came to zero, down from 6 three months earlier, while the index measuring their demand for mortgage loans plunged to 16 from 31 over the same period.

"Households' demand for mortgage loans is expected to greatly slow down due to the recent U.S. rate hike and a government move to tighten its check on household debts, while households' demand for ordinary loans is expected to come to a standstill," the BOK said, adding a zero reading only means no growth in demand and not zero demand for loans.

The country's households debts reached a record high as of end-September, only three months after the central bank sent its key rate to a record low of 1.5 percent in an attempt to bolster growth in Asia's fourth-largest economy.

Many, including BOK Gov. Lee Ju-yeol, have cited a need to keep close tabs on household debts following the first U.S. rate hike in nearly a decade last month.

More alarming is the fact the U.S. Federal Reserve is well expected to continue raising its key interest rate, which could prompt a mass outflow of capital and ensuing rate hikes here that could quickly lead to a rise in debt delinquencies. (Yonhap)