[Financial Stability Status] 192,000 'High-Risk' Self-Employed Households Unable to Repay Debt

High-Risk Self-Employed Households Increased by 83,000 Since March Last Year
High-Risk Self-Employed Debt Scale Reaches 76.6 Trillion Won... Nearly Doubled

[Asia Economy Reporter Kim Eunbyeol] It has been revealed that the number of self-employed households classified as 'high-risk households' due to their weak ability to repay debt reached 192,000 at the end of last year. This represents an increase of 83,000 high-risk self-employed households within nine months since the COVID-19 shock fully began in March last year. The financial debt held by high-risk self-employed households nearly doubled during the same period, rising from 38.7 trillion won to 76.6 trillion won. Among self-employed individuals with debt, 6.5% were classified as high-risk households, and in terms of debt size, 15.2% were classified as high-risk. It is understood that without the government's principal and interest repayment deferral measures, the number of high-risk self-employed households would have increased further.

According to the 'Financial Stability Status (March 2021)' released by the Bank of Korea on the 25th, the number of self-employed 'high-risk households' with weak debt repayment ability was counted at 192,000 as of the end of last year. The number of high-risk households surged from 109,000 in March last year to 192,000 in nine months. 'High-risk households' refer to those with a debt service ratio (DSR) of 40% or higher, indicating a heavy burden of principal and interest repayment, and a debt-to-asset ratio (DTA) of 100% or more, meaning it is difficult to repay debt through asset sales. The debt size they hold amounts to 76.6 trillion won. This accounts for 6.5% of all self-employed households with debt by number of households and 15.2% by amount.

The financial debt held by high-risk households reached 76.6 trillion won, increasing from 35.6 trillion won at the end of March 2019 to 38.7 trillion won at the end of March last year, and then to 76.6 trillion won at the end of last year. The debt size held by high-risk households nearly doubled in about nine months. The Bank of Korea analyzed that if the government's principal and interest repayment deferral measures had not been in place, the number of high-risk households would have increased to 207,000, and related debt would have risen to 79.1 trillion won.

Breaking down high-risk self-employed households by industry, based on financial debt, retail and wholesale businesses (18.8%) had the largest share of loans, followed by transportation (15.4%), healthcare (5.4%), and personal services (5.3%).

The financial soundness of all self-employed individuals was also deteriorating. The DSR of self-employed individuals was 38.3% at the end of last year, rising by 1.2 percentage points compared to 37.1% at the end of March 2020, despite the government's principal and interest repayment deferral measures. The loan-to-income ratio (LTI) of self-employed individuals increased sharply from 195.9% at the end of March 2020 to 238.7% at the end of December. The ratio of total debt to total assets for self-employed individuals rose from 28.5% at the end of March 2020 to 31.4% at the end of last year. Among self-employed individuals, those in the highest income quintile saw improvements in financial soundness indicators last year due to increases in owned assets such as real estate and stocks, but other income groups did not experience such improvements.

A Bank of Korea official stated, "Due to sales shocks caused by COVID-19, the debt repayment ability of self-employed individuals has significantly deteriorated," adding, "In particular, low-income (first and second quintiles) self-employed individuals experienced more severe financial soundness deterioration compared to other income groups." The official continued, "By industry, financial soundness declined in most face-to-face service sectors such as retail and wholesale, food service, lodging, transportation, and educational services," and emphasized, "As sales shocks continue and the principal and interest repayment deferral ends, there is concern that the debt repayment ability of self-employed individuals will deteriorate further. Therefore, it is necessary to consider supplementary measures such as installment repayment of deferred principal and interest when the deferral period ends."

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