According to data submitted by the Bank of Korea to lawmaker Park Sung-hoon of the main opposition People Power Party (PPP) on Tuesday, outstanding loans of the self-employed reached 1,095.5 trillion won (US$803 billion) as of the end of March, the highest level since relevant records began in 2012.
Their loans increased by 2.6 trillion won from the end of last year, with some 745.5 trillion won used for establishing or running their mom-and-pop businesses and the rest for household expenses and living costs.
To make matters worse, loans overdue by more than a month hit a record 22.3 trillion won in the first quarter, up from 20.3 trillion won from the previous quarter, while the overall delinquency rate climbed to 2.04 percent, the highest since the second quarter of 2015.
That suggests that more business owners are struggling to repay their loans after years of weak domestic demand and high interest rates, with expected rate hikes likely to add further pressure on them.
Borrowers with multiple loans faced an even heavier burden. Self-employed business owners with loans from three or more lenders owed a combined 645 trillion won in the first quarter, while their average debt remained unchanged at 390 million won.
Low-income business owners were hit hardest. Their outstanding loans reached a record 153.2 trillion won, while their delinquency rate climbed to 2.13 percent, the highest in more than a decade.
But rising loan balances and delinquency rates among higher-income borrowers suggest the financial strain is no longer limited to the most vulnerable.
The sharpest deterioration was seen at savings banks, which typically lend to riskier borrowers. Their delinquency rate on loans to self-employed business owners rose to 12.79 percent in the first quarter, up from 11.95 percent three months earlier. That was the highest level since 2015 and more than seven times the post-pandemic low of 1.78 percent recorded in 2022.
The central bank said those with lower credit often turn to savings banks and other nonbank lenders, making them more vulnerable to rising interest rates.
The outlook could worsen if interest rates rise further. The BOK estimates that a 0.25 percentage-point increase in lending rates would raise annual interest payments by 1.8 trillion won for the self-employed. For borrowers with multiple loans, the additional burden would reach 1.1 trillion won, or about 650,000 won per person annually.
Many market analysts expect the BOK to raise interest rates at least twice before the end of this year to weather growing inflationary pressure. In a report released last week, it warned that faster increases in lending rates or a slowdown in the services sector could leave more self-employed borrowers unable to repay their loans on time.
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