Self-Employed Debt Soars by 100 Trillion Won Due to COVID-19... "Urgent Need for Risk Management"

Financial Supervisory Service Data Submitted by Assemblyman Song Seok-jun's Office
527 Trillion in First Half of 2021 → 634 Trillion This First Half
Small Business Loan Guarantees, Impact of DSR Regulations

It has been revealed that the amount of money borrowed by self-employed individuals from financial sectors such as banks, savings banks, and mutual finance has increased by more than 100 trillion won over the past two years. As the economic recession is prolonged, there are calls to devise measures to reduce the risk of loan defaults.

According to data submitted by the Financial Supervisory Service to Song Seok-jun, a member of the National Assembly's Political Affairs Committee from the People Power Party, as of the first half of this year, the outstanding loans to individual business owners from banks, mutual finance, specialized credit finance companies (credit finance companies), savings banks, and insurance sectors totaled 634.9614 trillion won. This is an increase of 107.537 trillion won compared to the first half of 2021 (527.4244 trillion won).

The sector with the largest increase over the two years was mutual finance (Nonghyup, Suhyup, Shinhyup, etc.). It rose by 53.2947 trillion won from 93.09 trillion won in the first half of 2021 to 146.3847 trillion won in the first half of this year. Banks followed, increasing by 40.6257 trillion won from 405.5388 trillion won to 446.1645 trillion won during the same period. Next were savings banks with an increase of 6.8904 trillion won (from 15.2508 trillion won to 22.1412 trillion won), credit finance companies with 5.9635 trillion won (from 12.6238 trillion won to 18.5873 trillion won), and insurance with 0.7622 trillion won (from 0.9215 trillion won to 1.6837 trillion won).

The rapid increase in outstanding loans to individual business owners during this period was due to active loan support for small business owners amid COVID-19. The government provided 100% guarantees for small business loans through regional credit guarantee foundations and the Korea Credit Guarantee Fund.

There was also a 'balloon effect' caused by household loan regulations. The phased implementation of the borrower-level total debt service ratio (DSR) regulations (stages 1 to 3) from 2021 to 2022 increased the incentive for borrowers with high DSR to raise funds through individual business loans.

The problem is that the prolonged economic recession has reduced the repayment ability of self-employed individuals, increasing the possibility of loan defaults. For example, the delinquency rate on individual business loans at banks was 0.45% as of July this year, more than double the 0.21% recorded in July 2021.

Assemblyman Song pointed out, "Since COVID-19, loans to self-employed individuals have surged, which could increasingly burden both the self-employed and financial companies," adding, "It is urgent for the government to prepare a soft-landing plan that can reduce the burden on both sides."