[Geuman Report] Bank of Korea: "Increase in Self-Employed Loan Delinquency Rate and Vulnerable Borrower Ratio... Proactive Risk Management Needed"

Bank of Korea H2 Financial Stability Report
Q3 Self-Employed Loan Balance Approximately KRW 1,053 Trillion

The Bank of Korea emphasized that the proportion of vulnerable self-employed borrowers increased this year compared to last year, and that delinquency rates have recently risen rapidly, highlighting the need for proactive management of related risks.

In the Financial Stability Report released on the 28th, the Bank of Korea stated this regarding recent trends in self-employed loans and delinquency status.

According to the report, the outstanding balance of self-employed loans at the end of the third quarter was 1,052.6 trillion won (3.145 million borrowers). This represents a 3.8% increase compared to the same period last year, significantly below the long-term average growth rate (12% quarterly average from 2013 to 2023). The growth rate has rapidly slowed down this year.

Among self-employed loans, loans to individual business owners and household loans amounted to 696.7 trillion won and 355.9 trillion won, respectively. The growth in household loans for the self-employed (2%) slowed down more significantly than that of individual business owner loans (4.7%). By financial sector, the growth of self-employed loans has sharply decelerated in both banking and non-banking sectors, with the growth rate of non-bank self-employed loans (year-on-year) dropping more steeply from 24.3% at the end of 2022 to 5.4% in the third quarter of 2023.

By borrower characteristics, high-income and high-credit borrowers still constitute the majority, but recently, the proportion of low-income and low-credit self-employed borrowers has slightly increased. The proportion of vulnerable self-employed borrowers has also risen in both loan balance and number of borrowers compared to the end of last year. At the end of the third quarter of this year, the proportion of vulnerable self-employed borrowers was 12.4% (389,000 people) by number of borrowers and 11% (116.2 trillion won) by loan balance, slightly up from 11% and 9.8% at the end of last year.

[Image source=Yonhap News]

Although delinquency rates still remain below the long-term average level before COVID-19, they have recently risen rapidly. The delinquency rate of self-employed loans estimated by the Bank of Korea through the household debt database was 1.24% at the end of the third quarter this year, up 0.55 percentage points from 0.69% at the end of last year. The loans held by delinquent borrowers among all self-employed loans also increased to 2.47% at the end of the third quarter this year, up 1.13 percentage points from 1.35% at the end of last year.

The Bank of Korea pointed out, "If the burden of high loan interest rates continues while the income conditions of the self-employed improve slowly and the commercial real estate market remains sluggish, the scale of non-performing loans could expand, especially among vulnerable borrowers." It added, "For vulnerable self-employed borrowers, it is necessary to prepare short-term measures to reduce interest burdens and promote debt restructuring through low-interest refinancing programs and fresh start funds. In the medium to long term, proactive management of related risks should be pursued by encouraging voluntary loan repayments by normal borrowers and restructuring debt portfolios."

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