Business Owners Increasingly in Debt... 4.6 Trillion Won Rise This Year Alone [Self-Employed in Crisis] ②

The scale of loans and overdue amounts for small business owners and self-employed individuals continues to expand. This comes amid the worsening business environment for the self-employed due to the triple crisis of high interest rates, high exchange rates, and high inflation. The outstanding loan balance for individual business owners has increased by 50.8% (374 trillion won) compared to just before the COVID-19 pandemic, and this expansion trend continues, with about 4.6 trillion won increase recorded this year alone at the five major commercial banks.

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Self-employed Loans Increased by 4.6 Trillion Won This Year Alone

According to the financial sector on the 5th, the outstanding loan balance for individual business owners at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 324.1071 trillion won as of the end of May. This is an increase of 9.0318 trillion won (2.87%) compared to the same period last year (315.0753 trillion won).

Since the beginning of this year, loans to individual business owners at the five banks have been increasing by 1 to 2 trillion won each month: 319 trillion won in January, 320 trillion won in February, 321 trillion won in March, and 323 trillion won in April. The total increase in loans to individual business owners at the five banks over five months this year reached 4.6135 trillion won.

This is not just a recent phenomenon. When expanding the scope to all financial institutions, including borrowers with relatively low credit ratings and poor collateral, the difference is even more dramatic compared to before the COVID-19 pandemic.

According to the 'Status of Household and Business Loans for Individual Business Owners' submitted by NICE Information Service to former lawmaker Yang Kyung-sook of the National Assembly’s Planning and Finance Committee during the 21st National Assembly, as of the end of March this year, 3,359,590 individual business owners (self-employed) held loans (household and business loans) totaling 1,112.74 trillion won. Compared to the end of 2019, just before COVID-19 (2,097,221 borrowers, 738.06 trillion won), the number of borrowers increased by 60%, and the loan amount increased by 51%.

Delinquency Rate Shows Red Alert

As the overall loan volume has increased significantly, overdue amounts are also rapidly rising. During the same period, the total loan amount held by borrowers at risk of repayment who were overdue for more than three months surged from 15.62 trillion won to 31.3 trillion won, nearly doubling. The proportion of overdue amounts within the total outstanding loans is about 2.8%. Among these, the overdue amount for multiple debtors who have loans from two or more financial institutions reached 24.7534 trillion won. The overdue amount at the five major commercial banks also exceeded 1 trillion won. As of the end of the first quarter, the overdue amount for individual business owner loans at the five major commercial banks was 1.356 trillion won, a 37.4% increase compared to 987 billion won in the same period last year.

As delinquencies expand, the amount of subrogation payments by guarantee institutions is also increasing. This is evidenced by the subrogation payment scale of the Regional Credit Guarantee Foundation (Jisinbo), which mainly provides guarantees to self-employed individuals. Jisinbo’s subrogation payments were 507.6 billion won in 2022 but more than doubled to 1.7126 trillion won last year. The Korea Credit Guarantee Fund, which played a guarantee supply role for the self-employed during the COVID-19 period, also saw its subrogation payments increase by 67.4%, from 1.3599 trillion won to 2.2759 trillion won during the same period.

A financial sector official said, "Before the loan maturity extension and interest deferral measures implemented during COVID-19 could fully settle, the triple crisis arrived, worsening the business environment for the self-employed, causing both loan balances and delinquency rates to surge." He added, "Since a significant portion of delinquent self-employed borrowers are exposed to high interest rates, this trend is likely to continue until interest rate cuts are implemented."