SMEs and Small Business Owners' Delinquency Rate Shows 'Steep Rise'

Rising Trend in Credit Loan Delinquency Rates
Banks to Announce Small Business Interest Relief Measures Next Month

A notice regarding small business collateral loans is posted at a major bank in Seoul. Photo by Jinhyung Kang aymsdream@

The delinquency rates for small and medium-sized enterprises (SMEs) and household credit loans (based on principal and interest overdue by more than one month) are rising sharply.

According to the Financial Supervisory Service on the 25th, the delinquency rate for SMEs at the end of September was 0.49%, an increase of 0.22% compared to one year ago. Among SMEs, the delinquency rate for small and medium-sized corporations was 0.52%, up 0.19 percentage points from a year earlier. The delinquency rate for individual business loans (0.46%) also rose by 0.27 percentage points compared to the same period last year. Household credit loans recorded a 0.28 percentage point increase to 0.65%.

The scale of newly generated delinquent loans in September also remained at a high level. The amount of new delinquencies in September alone was 2.2 trillion won, similar to the previous month. However, at the end of the quarter, banks managed delinquency rates by selling and writing off delinquent loans, resulting in a total cleanup of delinquent loans amounting to 3 trillion won. This was 1.6 trillion won more than the previous month.

The overall delinquency rate for domestic banks' won-denominated loans was recorded at 0.39%, up 0.18% from a year ago. The financial authorities stated, "To prevent the sharp rise in bank delinquency rates from shrinking the function of fund supply, we are encouraging the expansion of delinquency and non-performing loan cleanup and ensuring sufficient loan loss provisions are set aside for vulnerable sectors."

Meanwhile, the eight major financial holding companies (KB, Shinhan, Hana, Woori, NH Nonghyup, BNK, DGB, JB) have agreed to prepare a plan to reduce interest rates for self-employed and small business owners amounting to 2 trillion won by the end of the year. This follows President Yoon Seok-yeol's remark about 'small business owners being treated like bank servants,' prompting financial authorities to request the financial sector to devise countermeasures.

On the 20th, Financial Services Commission Chairman Kim Joo-hyun said at a meeting with the heads of financial holding companies, "Considering the desperate situation of self-employed and small business owners burdened by high interest rates, please devise a 'tangible and perceptible plan' that can 'directly reduce a certain level of the increased interest burden after the end of COVID-19' within the 'maximum range that does not harm the soundness of financial companies.'"

Accordingly, the eight major financial holding companies are currently forming a task force (TF) led by the Korea Federation of Banks to prepare countermeasures.