South Korean banks see the biggest risk in at least 10 years that consumers and businesses will default on loans amid growing signs of worries about economic recession, the Korea Herald reported on Wednesday.

According to a survey to 16 local lenders by the central bank, the credit-risk gauge measuring lenders' concerns of loan defaults will rise to 48 in the first quarter of 2009 after climbing to 44 in the fourth quarter of 2008, revealing that respondents see a greater risk of defaults.

The credit-risk gauge is based on a survey of lenders conducted from Dec. 6 to Dec. 19. A reading of 48 would be the highest credit risk since the central bank began the series in 1999. The index ranges from minus 100 to plus 100.

South Korea has allocated about 140 trillion won (107 billion U.S. dollars), or 15 percent of gross domestic product, in extra liquidity, tax cuts and spending to cushion against fallout from the global credit crisis, the Korea Herald said.

The government has promised a 20 trillion-won (15.3 billion U.S. dollars fund to boost banks' capital amid rising bad loans and pledged to help stricken companies restructure.

"It's not surprising to see credit risk rising when the economy is in trouble," said Chun Chong-woo, an economist at SC First BankKorea Ltd. in Seoul. "Policy makers will have to take more action to support the economy."

The central bank predicted earlier that South Korea's economy probably shrank in the final three months of 2008, the first contraction in almost six years.

(Xinhua News Agency January 7, 2009)