SEOUL, SOUTH KOREA - South Korean banks see the credit risk presented by small and medium-sized enterprises (SMEs) rising to the highest on record in the current quarter in the face of the global economic crisis, a central bank survey showed on Tuesday.

Banks expect demand for loans to increase in the first quarter but are not expecting to increase lending because of fears about the worsening credit quality among borrowers, the Bank of Korea survey also found.

The central bank said an index measuring how banks rate the credit risk of SMEs hit a record 59 in the first quarter, compared with 56 in the fourth quarter of 2008.

A reading above zero means most banks expect credit risks to grow.