The 4th Wave Hits Self-Employed Hard... What About the 831 Trillion Debt?

Comprehensive Management and Support Needed for Self-Employed Debt

Due to the rapid increase in COVID-19 cases, social distancing measures in the Seoul metropolitan area are being extended. On the 4th, the Myeongdong area in Jung-gu, Seoul, appeared quiet even on a holiday. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Park Sun-mi] As the fourth wave of COVID-19 intensifies, deepening the concerns of self-employed individuals, there is a growing call for comprehensive management and support for the rapidly increasing debt of domestic self-employed persons.

According to the Bank of Korea on the 12th, as of the end of March this year, the outstanding loans of domestic self-employed individuals reached 831.8 trillion won. This accounts for 27.1% of the total private loans of 3,065.1 trillion won, which includes household and corporate loans. This represents an 18.8% increase compared to a year ago and marks the highest level since the Bank of Korea began compiling related data in 2012. It is also significantly higher than the 9.5% and 14.1% growth rates of household and corporate loans, respectively.

Self-employed loans consist of 550.6 trillion won from banks and 281.2 trillion won from non-bank sectors, accounting for 66.2% and 33.8% of total self-employed loans, respectively. It is noteworthy that non-bank loans are rapidly increasing, especially in industries facing difficult business conditions, leading the overall growth trend of self-employed loans.

Senior Research Fellow Shin Credit-sang of the Korea Financial Research Institute stated, "Around the time when monetary policy direction changes or government financial support measures end, the proportion of vulnerable and high-risk self-employed individuals tends to increase, and their credit risk is likely to materialize." He advised, "It is a time to identify related risks centered on these groups and prepare systematic and proactive countermeasures to minimize shocks."

Research Fellow Shin emphasizes the importance of preparing a gradual exit strategy to ensure that the end of principal and interest repayment deferral measures does not cause irreparable shocks to vulnerable and high-risk self-employed households. He suggests considering methods to adjust or spread out repayment timings so that repayment burdens and default risks do not concentrate at a specific point in time.

He also mentioned the need to set and operate total volume management targets for self-employed loans. In particular, he pointed out that not only is total volume management necessary for sub-sectors such as savings banks and specialized credit finance companies, where the proportion of high-interest and low-credit loans has significantly increased, but also separate management is needed for savings banks?especially for self-employed credit loans?where borrowers' credit risks are relatively high and loans are concentrated in industries sensitive to economic fluctuations. Furthermore, to prevent the spread of financial risks, he advised that risk management and responsible lending by financial institutions handling self-employed loans are urgently needed.

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