Self-Employed Struggling with Debt in Q2... Loans Increased by 9.4 Trillion Won

Bank of Korea '2021 Q2 Industrial Loans by Deposit-Taking Institutions'

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Amid the continued spread of COVID-19, it has been revealed that self-employed individuals barely managed to sustain their businesses through debt in the second quarter of this year as well.

According to the "2021 Q2 Depository Institutions' Industry-Specific Loans" released by the Bank of Korea on the 1st, the outstanding loan balance from deposit banks to non-corporate enterprises (self-employed) stood at 418.5 trillion KRW at the end of Q2 this year, an increase of 9.4 trillion KRW compared to the previous quarter. Although the increase was smaller than that of Q1 (10.5 trillion KRW), the loan balance for self-employed individuals grew again. This figure does not include non-bank deposits, so the actual loans to self-employed individuals are estimated to be higher. Non-corporate enterprises refer to business organizations wholly owned by individuals, typically meaning self-employed persons.

Before COVID-19, the quarterly loan increase for self-employed individuals was around 5 to 6 trillion KRW, but it surged to 21.2 trillion KRW in Q2 last year. This was the result of covering operating funds through debt as the COVID-19 situation prolonged.

The loan balance in the service sector, which has a high proportion of self-employed individuals, also increased by 33.7 trillion KRW compared to the previous quarter, reaching 945.5 trillion KRW. The increase in Q1 was 31.1 trillion KRW.

In the wholesale and retail sector, the increase expanded from 7.5 trillion KRW to 8 trillion KRW due to decreased sales at some small retail stores. However, until Q2, as the number of COVID-19 cases decreased and social distancing measures were eased, the increase in loans for accommodation and food services was 2.6 trillion KRW, lower than the 3 trillion KRW increase in Q1.

Among service industries, the loan increase in real estate jumped significantly from 7.1 trillion KRW in Q1 to 12.1 trillion KRW in Q2. This was due to expanded investment in commercial real estate.

The loan increase in manufacturing decreased from 7.1 trillion KRW to 4.9 trillion KRW. Although business conditions slowed, companies temporarily repaid loans to manage semi-annual financial ratios, which reduced the increase.

Meanwhile, during Q2, the total industry-specific loans by depository institutions recorded 1,478.5 trillion KRW. The quarterly increase was 42.7 trillion KRW, slightly higher than the 42.1 trillion KRW in the previous quarter. The year-on-year growth rate was 11.3%, down from 14.0% in the previous quarter.