The Bank of Korea: "270,000 Self-Employed Households Face Liquidity Risk... 10,000 More Than Last Year"

[Asia Economy Reporter Seo So-jeong] Since the COVID-19 pandemic, the number of self-employed households facing liquidity risk is estimated at 270,000, with their financial debt amounting to 72 trillion won.

In the analysis titled 'Current Status and Implications of Potential Delinquency in Loans to Self-Employed Households' from the 'Financial Stability Report' released by the Bank of Korea on the 24th, it was revealed that as of the end of last year, approximately 780,000 self-employed households with financial debt were operating at a deficit, accounting for 16.7% of all self-employed households.

The financial debt held by these deficit households was 177 trillion won, representing 36.2% of the total financial debt of self-employed households.

In particular, among the deficit households, those classified as 'liquidity risk households'?which have liquidity assets sufficient to cover their deficits for less than one year?numbered 270,000 at the end of last year, an increase of 10,000 households compared to March 2020. The financial debt of these households reached approximately 72 trillion won, an increase of 13 trillion won since March 2020.

The Bank of Korea explained, "Since 2021, liquidity risk households have decreased in wholesale, retail, and transportation sectors, but have increased in sectors such as accommodation, food services, and education, where sales recovery has been slow due to the spread of the Omicron variant."

With the government deciding to extend the maturity and repayment deferral measures for small business loans uniformly until September, the Bank of Korea forecasted that depending on changes in this year's economic conditions, the financial debt of liquidity risk households could increase by 1 to 10 trillion won compared to the end of last year.

It is expected that the financial debt of deficit households could decrease by 1 trillion won this year under an optimistic economic recovery scenario, but could increase by 18 trillion won in the event of an economic downturn.

The Bank of Korea emphasized, "Since the credit risk of loans to self-employed individuals may increase rapidly, financial institutions need to proactively prepare for potential defaults by expanding provisions for loan losses."