Average Loan Interest Rate for Self-Employed at Commercial Banks Exceeds 5%

Average Loan Interest Rate for Sole Proprietors and Small Businesses Exceeds 5%
Even with Highest Credit Rating, Borrowers Face Over 4% Interest Rates, Increasing Financial Burden
Corporate Loan Interest Rates Surpass Personal Loan Rates

On the 3rd, a restaurant in Myeongdong, Seoul, where self-employed people’s worries are deepening, was quiet. Photo by Mun Ho-nam munonam@

"The money I received last year as compensation for COVID losses is all going toward interest expenses this year."

Mr. Cha Myung-woo (46), who runs a restaurant in Ansan, Gyeonggi Province, is looking into getting more business loans. "Interest rates have risen so much that the interest on my existing loans is already 300,000 won more per month than last year," he said. "Delivery sales have hit rock bottom these days, so I need about 20 million won more in new loans to hold on, but with loan interest rates close to 5%, I don't even dare to borrow. I'm considering closing the business and driving a taxi," he sighed.

The loan interest rates for individual business owners and small and medium-sized enterprises (SMEs) at the five major banks have exceeded 5%. Compared to a year ago, rates have risen by more than 1 percentage point, increasing the interest burden on SMEs. According to the Bankers Association consumer portal disclosure on the 30th, from June to August this year, the average loan interest rates for individual business owners at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) ranged from 3.59% to 5.09%. Even individual business owners with the highest credit ratings (grades 1 to 3) received loans with interest rates in the 4% range (3.26% to 4.70%).

The average loan interest rates for SMEs at the five major banks (4.02% to 5.43%) were higher than those for individual business owners. However, the banks’ spread (the additional interest rate margin over the base rate) on loans to individual business owners and SMEs has uniformly decreased this year compared to last year. The spread on loans to individual business owners fell from 1.61%?2.86% last year to 0.78%?2.56% this year. Similarly, the spread on SME loans dropped from 2.08%?3.16% to 1.33%?2.87% during the same period.

On the 22nd, a business owner is updating the menu with increased prices at a restaurant in downtown Seoul, where self-employed individuals are struggling due to soaring inflation. Photo by Mun Honam munonam@

Meanwhile, the average interest rate on corporate loans (including large corporations, SMEs, and individual business owners) has recently surpassed that of household loans. Among the five major banks, KB Kookmin Bank (corporate 4.45% vs. household 4.42%), Hana Bank (corporate 4.47% vs. household 4.33%), and NH Nonghyup (corporate 4.26% vs. household 4.21%) had corporate loan rates higher than household loan rates. In July, four of the banks except Hana Bank had corporate loan rates lower than household loan rates, but this reversed in August.

An official from a commercial bank explained, "As the exchange rate rose sharply, commercial banks have been reluctant to increase corporate loans further to prevent deterioration of their capital adequacy ratio (BIS ratio), which is one reason corporate loan rates have risen recently." He added, "With corporate bond rates rising, demand for corporate loans at banks has increased compared to the beginning of the year, and the sharp rise in financial bond rates in August also pushed corporate loan rates higher."

As corporate loan interest rates rise, companies?whether large or small?are inevitably facing greater difficulties. According to a survey conducted by the Korea Chamber of Commerce and Industry earlier this month targeting 307 domestic manufacturing companies, 61.2% of respondents said they are "actually struggling due to high interest rates."

The biggest difficulty companies face is "deterioration of financial conditions due to interest burden," cited by 67.6%. Regarding support measures they hope financial authorities will provide amid the recent interest rate environment, companies most frequently selected "support for switching to fixed interest rates" (34.9%).