Customers consult with staff at a KB Kookmin Bank branch in central Seoul. [Herald DB]
Customers consult with staff at a KB Kookmin Bank branch in central Seoul. [Herald DB]

A 0.25 percentage point rise in lending rates would add about 1.8 trillion won to the annual interest burden of self-employed borrowers, new Bank of Korea estimates show. The average per-borrower increase would be 560,000 won ($376). With monetary tightening expected to persist, debt-repayment pressure on the self-employed and other vulnerable groups is set to intensify.

The Bank of Korea submitted the estimates Thursday to the offices of People Power Party lawmakers Park Sung-hoon and Lee Jong-wook. According to the data, a 0.25 percentage point increase in lending rates would raise the total annual interest burden on self-employed borrowers by 1.8 trillion won, or an average of 560,000 won per borrower.

A 0.50 percentage point rise would add 3.6 trillion won — 1.12 million won per borrower — while a 0.75 percentage point increase would push the additional burden to 5.4 trillion won, or 1.68 million won per borrower.

Financially vulnerable self-employed borrowers would feel the impact more acutely. A 0.25 percentage point rate increase would add 1.1 trillion won to the interest burden of self-employed multiple debtors, raising the per-borrower annual burden by 650,000 won.

A 0.50 percentage point rise would add 2.1 trillion won — 1.3 million won per borrower — and a 0.75 percentage point increase would add 3.2 trillion won, or 1.95 million won per borrower.

Multiple debtors are borrowers who hold three or more combined loans or loan products across financial institutions, and are considered in effect to be at the limit of their borrowing capacity.

Separately, a 0.25 percentage point rise in mortgage rates would increase the annual interest burden across all mortgage borrowers by 1.8 trillion won, the Bank of Korea estimated.

The per-borrower annual interest payment would rise from an average of 5.84 million won to 6.14 million won — an increase of 296,000 won.

A 0.50 percentage point rise would add 3.7 trillion won to the annual interest burden, and a 0.75 percentage point increase would add 5.5 trillion won.

Per-borrower annual interest payments would reach an average of 6.43 million won and 6.73 million won, respectively — increases of 592,000 won and 889,000 won from current levels.

Other loan categories — including personal credit loans, revolving credit lines and savings-secured loans — could also see higher rates.

The Bank of Korea estimated that a 0.25 percentage point rise in rates on such loans would add 1.5 trillion won to annual interest costs, or an average of 76,000 won per borrower.

A 0.50 percentage point increase would add 3 trillion won — 153,000 won per borrower — while a 0.75 percentage point rise would add 4.5 trillion won, or 229,000 won per borrower.

The Bank of Korea's monetary policy committee has signaled it will maintain its tightening stance until inflation stabilizes, meaning the debt-repayment burden on the self-employed and other vulnerable groups is expected to grow for a considerable period.

Bank of Korea Governor Shin Hyun-song, speaking at a monetary policy press briefing Thursday, said policies to ease the hardship of vulnerable borrowers — such as debt restructuring — are most urgently needed. "Fiscal or financial policies that can deliver targeted effects are better suited here than monetary policy," he said.


kimstar@heraldcorp.com