Christmas Sales Also 'Plummet'... Self-Employed Debt Surpasses 887 Trillion Won

Self-Employed on the Brink
BOK "Concerns Over Deteriorating Debt Repayment Ability... Seeking Measures to Manage High-Risk Self-Employed"

The spread of COVID-19 and the strengthening of quarantine measures are deepening the worries of self-employed workers. On the 16th, an employee is wiping tables at a restaurant in Jung-gu, Seoul.
Photo by Mun Honam munonam@

[Asia Economy Reporter Jang Sehee] As social distancing measures are strengthened due to the resurgence of COVID-19, the sighs of self-employed business owners are growing louder. It is difficult to expect a Christmas boom, and debts are increasing even more. There are forecasts that the shock to the self-employed will become greater in conjunction with the upcoming interest rate hike period.

According to the "2021 Second Half Financial Stability Report" released by the Bank of Korea on the 23rd, as of the end of September, the loan size of self-employed individuals was 887.5 trillion won, an increase of 14.2% compared to the same period last year. This far exceeds the household loan growth rate (10.0%).

As of the end of September this year, the average loan per self-employed person was 350 million won, nearly four times that of non-self-employed individuals (90 million won). By industry, the growth rates were high in face-to-face service sectors such as wholesale and retail (12.7%), accommodation and food services (11.8%), and leisure services (20.1%). When divided by self-employed income, the loan growth rates were highest in the 3rd quintile (20.4%), followed by the 2nd quintile (17.4%) and the 1st quintile (17.3%), indicating that loans increased significantly among middle- and low-income self-employed individuals.

Currently, as of the third quarter of this year, the self-employed have borrowed 578.1 trillion won from banks and 309.5 trillion won from non-bank sectors, with the non-bank loan growth rate (19.8% year-on-year) greatly exceeding the bank loan growth rate (11.3%).

The Bank of Korea estimated changes in the total debt service ratio (DSR) of the self-employed when loan maturity extensions end. If support measures are terminated, the self-employed will bear additional principal and interest repayments that were previously deferred, causing the debt-to-income ratio DSR to rise by 2.2 percentage points to 41.3%, compared to 39.1% if support measures continue.

The Bank of Korea emphasized, "Due to the occurrence of COVID-19 variants and prolonged social distancing, the debt repayment ability of the self-employed may deteriorate. Relevant authorities and financial institutions should strengthen risk management and devise customized management plans for vulnerable and high-risk self-employed individuals."

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