[Bank of Korea Financial Stability Report] Self-Employed in Crisis... 50,000 Businesses May Be Irrecoverable

[Asia Economy Reporter Kim Eunbyeol] As the COVID-19 pandemic prolongs, it has been found that 2 out of 100 self-employed households (about 48,000) may fall into an irrecoverable state.

On the 24th, the Bank of Korea stated in the '2020 Second Half Financial Stability Report' that "the proportion of self-employed households facing both liquidity risk and insolvency (complex risk households) is expected to rise to around 2.0~2.2% by the end of next year." In February this year, the proportion of complex risk households among self-employed households was only about 0.4%. A Bank of Korea official pointed out, "It is necessary to note that complex risk households are unlikely to improve their financial situation even after the prolonged impact of COVID-19 is resolved."

The Bank of Korea analyzed the risk for self-employed households in industries expected to be heavily affected by COVID-19 (retail and wholesale, transportation and storage, accommodation and food services, real estate, education, health, leisure, and other personal services) using last year's Household Financial and Welfare Survey. The main self-employed households analyzed totaled 2.44 million, accounting for 53.8% of all self-employed households (4.53 million).

As the COVID-19 situation continues, the proportion of deficit households among the self-employed has significantly increased. The proportion of deficit households, whose total income falls below essential expenses, rose from 19.2% in February before the COVID-19 outbreak to 21.8% in March immediately after the shock. With the government's principal and interest repayment deferral measures, the deficit household proportion is expected to decrease to about 18.8% by March next year.

However, the Bank of Korea is concerned about the 'liquidity risk' households among deficit self-employed households who cannot respond by using financial assets, and the 'insolvency' households whose assets fall below their debt levels, resulting in negative net assets. In particular, the Bank of Korea believes that if self-employed individuals face both liquidity risk and insolvency simultaneously, they will not be able to return to previous levels even if the COVID-19 situation recovers.

In the report, the Bank of Korea pointed out, "Considering that the proportion of deficit households rises again after April next year when government measures such as principal and interest repayment deferrals end, temporary financial support measures seem limited in resolving the problems faced by the self-employed." Furthermore, it advised, "When considering extending the principal and interest repayment deferral, it is necessary to distinguish whether the self-employed's financial situation is a temporary liquidity shortage or insolvency." This means that prioritizing financial support for self-employed individuals facing temporary liquidity crises is more effective. Additionally, it emphasized, "In the mid to long term, measures such as supporting industry transitions to respond to changes in consumption patterns need to be prepared."

This content was produced with the assistance of AI translation services.