Loan Interest Rates Decrease to 4% Range... Increase in 5% and 6% Ranges
"Concerns Over Further Decline in Second Half Sales"
Loans to small and medium-sized enterprises (SMEs), including self-employed individuals, continue to increase, while interest burdens are also growing.
According to the financial industry on the 6th, the outstanding SME loans at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) totaled KRW 609.1013 trillion as of the end of June. Among these, loans to self-employed individuals amounted to KRW 31.53676 trillion. The month-on-month increases were KRW 461.8 billion and KRW 292.3 billion, respectively. This indicates that debt is rising mainly among small individual business owners.
The burden of loan interest for these borrowers is also increasing, which is a bigger problem. According to the Bank of Korea's Economic Statistics System, the proportion of new SME loans with interest rates in the 4% range (42.3% → 36.9%) decreased from April to May among domestic deposit banks. In contrast, the proportions in the 5% range (39.3% → 40.5%) and 6% range (8.7% → 12.1%) increased. The average SME loan interest rate also rose from 5.14% to 5.23% during the same period.
Given this situation, the SME delinquency rate is noticeably higher than in other sectors. According to data from the Financial Supervisory Service, the SME delinquency rate (as of last April) was 0.45%, up 0.05 percentage points from the previous month. This stands out compared to the large corporation delinquency rate, which was 0.09% and similar to the previous month, and the household loan delinquency rate, which was 0.34%, up 0.03 percentage points from the previous month.
There are also observations that sales for self-employed individuals declined in the first half of this year and that the outlook for the second half is not optimistic. The Federation of Korean Industries commissioned market research firm Monoresearch to survey 500 self-employed individuals working in the restaurant, lodging, and wholesale and retail sectors on their "2023 First Half Performance and Second Half Outlook." The survey showed that 63.4% responded that sales in the first half of this year decreased compared to the same period last year.
First-half sales decreased by an average of 9.8% year-on-year, and net profits fell by 9.9%. About 50.8% of respondents said that sales in the second half would decrease compared to the first half, indicating that nearly half have a pessimistic outlook for the second half as well. The average loan amount of the self-employed respondents was around KRW 83 million. More than half (51.2%) said they took out more loans than at the beginning of the year due to increased fixed costs and repayment of existing loan interest.
Additionally, 40.8% of respondents said they are considering closing their businesses within three years. The most cited reason was the continued deterioration of business performance (29.4%), followed by worsening financial conditions and loan repayment burdens (16.7%).
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