SME Loans and Delinquency Rates Rise for Three Consecutive Months: "Double Burden of Inflation and Oil Prices"

SME Loan Balances Reach KRW 1,080 Trillion in March
Delinquency Rates Also on the Rise

The outstanding loan balances and delinquency rates of small and medium-sized enterprises (SMEs) in South Korea have been steadily rising over the past three months. This trend is attributed to a rapid deterioration in the business environment, as the aftermath of the Middle East war has led to soaring international oil prices and inflation, significantly increasing companies’ cost burdens, while also compounding a contraction in consumer spending.

According to the "KOSI SME Trends" report published by the Korea Small Business Institute on April 28, the outstanding loan balance for SMEs at deposit banks last month reached KRW 1,080.1 trillion, up KRW 4.5 trillion from the previous month. The SME loan balance has risen by nearly KRW 9 trillion from KRW 1,071.2 trillion in January to KRW 1,080.1 trillion last month, marking three consecutive months of increase since December of last year. During the same period, loans to individual business owners increased slightly from KRW 458 trillion to KRW 459.8 trillion.

At the same time, delinquency rates have also increased, raising the risk of credit deterioration. The delinquency rate for SME loans rose from 0.72% in December of last year to 0.92% in February. During the same period, the delinquency rate for small and medium-sized corporations climbed from 0.78% to 1.02%, while it increased from 0.63% to 0.78% for individual business owners. Since the impact of the Middle East war that broke out on February 28 was not reflected in the survey, it is expected that the delinquency rates for SMEs, corporations, and individual business owners will continue to rise in the near future.

Interest rates are also contributing to the burden. The SME loan interest rate at deposit banks in February was recorded at 4.28%, up 0.07 percentage points from the previous month. After pausing since December of last year, interest rates have started to climb again, further adding to the interest burden.

This trend is seen as a signal that the structural vicious cycle of "increased borrowing → rising repayment burden → higher delinquency rates" is becoming entrenched. The Middle East war has driven up international oil prices, while logistics and raw material costs have climbed simultaneously, leading to a rapid deterioration in the profitability of the manufacturing and service sectors. Additionally, with consumer sentiment dampened by high inflation, there are growing concerns that SMEs with weaker sales bases may be forced into the category of "marginal companies."

An official from the Korea Small Business Institute stated, “As worsening external conditions are leading to a perceived downturn in the economy among SMEs, it is essential to implement policy measures to alleviate their cost burdens. Short-term measures such as loan maturity extensions or repayment deferrals alone are unlikely to prevent a rise in delinquency rates. It is necessary to combine tailored interest rate support that reflects the characteristics of each sector with institutional mechanisms that allow for sharp increases in raw material costs to be reflected in supply prices.” The official further added, “Policy finance should not be limited to simply supplying loans, but should be designed to simultaneously encourage sales recovery and cost reduction.”

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