[Geuman Report] "Gyeonggi is very bad... The number of self-employed unable to repay debts has greatly increased"

Loan Balances and Delinquency Rates for Self-Employed Rise Sharply as Economy Worsens
Increase in Proportion Moving from Middle-Income, Middle-Credit to Low-Income, Low-Credit Self-Employed

On the 13th, the Solidarity of Small Business Owners and Self-Employed held a political declaration at the National Assembly in Yeouido, Seoul, urging impeachment. Photo by Jo Yong-jun

As the economic downturn continues, the scale of loans to self-employed individuals has reached an all-time high. It has also been identified that the number of self-employed people who cannot repay their debts on time despite earning money has increased.

According to the Bank of Korea's Financial Stability Report on the 24th, the outstanding loans to domestic self-employed individuals at the end of the third quarter reached 1,064.4 trillion won, marking a record high. Loans to the self-employed are divided into individual business loans and household loans, with the rapid increase in individual business loans?711.8 trillion won in the third quarter, up from 460 trillion won in 2020 over four years?being a significant factor.

Not only has the volume of loans increased, but the quality has also deteriorated. The delinquency rate on self-employed loans in the third quarter was 1.7%, rising for nine consecutive quarters since the second quarter of 2022. This is also the highest rate since the first quarter of 2015, when it was 2.0%. By sector, the delinquency rate on non-bank loans for the self-employed (3.51%) surged significantly, far exceeding the delinquency rate on bank loans (0.51%).

Increase in the Proportion Moving from Middle-Income, Middle-Credit Self-Employed to Low-Income, Low-Credit

The situation was worse for vulnerable self-employed individuals who are multiple debtors with low income and low credit. The delinquency rate for vulnerable self-employed individuals in the third quarter was 11.55%, showing a large gap compared to non-vulnerable self-employed individuals (0.42%). Until the second quarter of 2022, the delinquency rate for vulnerable self-employed individuals was below 4%, but it nearly tripled in just two years.

The proportion of vulnerable self-employed individuals is also increasing every year. For low-credit self-employed individuals, their share of the total self-employed rose from 6.4% at the end of last year to 7.4% in the third quarter of this year, and for low-income individuals, it expanded from 15.3% to 15.8%.

The Bank of Korea analyzed that the number of middle-income, middle-credit or higher self-employed borrowers falling into the vulnerable category has significantly increased as they face difficulties in their existing businesses due to the economic downturn, resulting in reduced income and inability to repay loans.

A Bank of Korea official stated, "The recent increase in low-income, low-credit self-employed borrowers appears to be mainly due to the overall decline in income and creditworthiness of existing self-employed borrowers rather than an expansion of new business loans by financial institutions to these borrowers."

As the difficult situation for the self-employed continues, financial support from banks is also ongoing. Major domestic banks announced financial support worth 2 trillion won over three years for 250,000 self-employed individuals (small business owners) facing loan delinquency or risk of closure. The support mainly involves reducing the annual interest burden by 500 billion won on loans totaling 12 trillion won for 200,000 self-employed individuals.

A Bank of Korea official emphasized, "The government and financial authorities should continue to provide financial support to self-employed individuals experiencing temporary difficulties due to high interest burdens," but also stressed, "For some vulnerable self-employed individuals with low chances of recovery, active debt restructuring and reemployment education should be provided together to prevent them from continuing their businesses relying on debt under eased financial conditions."