Outstanding loans to self-employed hit record 1,095.5 trillion won

Delinquency rate at 2.04%, highest in nearly 11 years

A 0.25-percentage-point rate hike would add 1.8 trillion won in interest burden

Kim Yong-beom: 'Semiconductor profits exploding, but storefronts sit empty'

Total overdue loans to self-employed borrowers reached 22.3 trillion won at the end of the first quarter, up 2 trillion won from the end of last year — an all-time high. A commercial space in Seoul displays a rental inquiry sign. [Newsis]
Total overdue loans to self-employed borrowers reached 22.3 trillion won at the end of the first quarter, up 2 trillion won from the end of last year — an all-time high. A commercial space in Seoul displays a rental inquiry sign. [Newsis]

By Kim Byeo-ri, The Herald Business

Outstanding loans to South Korea's self-employed borrowers and the total amount in arrears both hit all-time highs at the end of the first quarter, according to new data. The delinquency rate on self-employed loans at savings banks surpassed 12 percent, the highest since 2015, and analysts warn that further benchmark interest rate increases could deepen the distress.

The Bank of Korea submitted data to the office of Park Sung-hoon, a People Power Party lawmaker on the National Assembly's Finance and Economy Planning Committee, showing that total outstanding loans to self-employed borrowers across all financial institutions stood at 1,095.5 trillion won ($709 billion) at the end of the first quarter. That figure rose 2.6 trillion won in just three months, the highest level since the Bank of Korea began tracking the data in 2012.

Breaking down the loans by type, business loans accounted for 745.5 trillion won and household loans for 350 trillion won. The outstanding balance of business loans alone also set a record since data collection began in 2012.

Among self-employed borrowers, those carrying multiple debts held an outstanding balance of 645 trillion won at the end of the first quarter, down 2.7 trillion won from 647.7 trillion won at the end of last year. The average loan balance per multiple-debt borrower held steady at 390 million won, unchanged from the end of last year. Multiple-debt borrowers are defined as those with a combined total of more than three household loan accounts and individual business loan products.

Total overdue loans to self-employed borrowers reached 22.3 trillion won at the end of the first quarter, up 2 trillion won from 20.3 trillion won at the end of last year, setting an all-time high. The overall delinquency rate climbed from 1.86 percent at the end of last year to 2.04 percent at the end of the first quarter — the highest since the second quarter of 2015, when it stood at 2.08 percent, a span of nearly 10 years and nine months.

Broken down by income level, outstanding loans to low-income self-employed borrowers — those in the bottom 30 percent — rose 3.7 trillion won to 153.2 trillion won from 149.5 trillion won at the end of last year, also a record high. Loans to high-income borrowers in the top 30 percent edged up 200 billion won to 744.9 trillion won from 744.7 trillion won, likewise setting a new record. Middle-income borrowers, those between the 30th and 70th percentiles, saw their outstanding balance fall 1.3 trillion won to 197.4 trillion won from 198.7 trillion won.

On delinquency rates, low-income self-employed borrowers saw their rate rise 0.13 percentage points to 2.13 percent from 2.00 percent at the end of last year — the highest since the end of 2015, when it stood at 3.88 percent, a gap of about 10 years and three months. High-income borrowers saw their rate rise 0.19 percentage points to 1.60 percent from 1.41 percent, the highest since the second quarter of 2015, when it was 1.61 percent — nearly 10 years and nine months ago. Middle-income borrowers recorded a rate of 3.64 percent, up from 3.45 percent, the highest among all income groups.

The rise in first-quarter delinquency rates is partly tied to expectations of a benchmark interest rate increase. If rates rise further, the burden of principal and interest repayments on self-employed borrowers will grow, potentially pushing delinquency rates even higher. The Bank of Korea estimated that a 0.25-percentage-point increase in lending rates would add 1.8 trillion won to the interest burden on self-employed borrowers. Under the same scenario, the additional interest burden on self-employed multiple-debt borrowers was estimated at 1.1 trillion won.

Kim Yong-beom, the Cheong Wa Dae policy chief, wrote on social media on June 20 that "the macroeconomic indicators of the Korean economy are running hot, but the business conditions that self-employed people actually feel remain cold." He added: "Samsung Electronics and SK hynix are posting explosive operating profits, while neighborhood storefronts worry about vacancies. Share prices are heading toward all-time highs, yet there are still many people agonizing over whether to shut down their businesses."


kimstar@heraldcorp.com