Delinquency rate for self-employed people in the top 30% of income
Average 1.35%… Best in 9 and a half years
As the domestic recession continues, there is a limit to how much debt can be sustained
“Measures for the self-employed are urgently needed, regardless of income”
Mr. Kim (39), who has been running an entrance exam academy in Namyangju, Gyeonggi-do for 10 years, is worried about the recent decline in profitability. This is because the outflow of students is becoming more severe as large franchise academies open nearby. He said, “I occasionally take out short-term loans from banks to pay my instructors,” and added, “The competition is fierce, but the economic situation is not good, so it’s difficult.”
It was found that not only small business owners but also self-employed people in the top 30% of income brackets are having difficulty repaying loan principal and interest. As the burden on the self-employed is increasing due to the prolonged domestic recession, some point out that comprehensive measures should be put in place to support them.
According to data received from the Bank of Korea by the office of People Power Party lawmaker Park Seong-hoon, a member of the National Assembly Planning and Finance Committee, on the 8th, as of the end of September last year, the delinquency rate (percentage of loan balances where principal and interest are overdue by more than one month) for self-employed people in the top 30% of income earners was 1.35%. This is the highest figure in 9 years and 6 months since the end of March 2015 (1.71%).
Even in 2020-2021, when the service industry economy froze in the aftermath of the novel coronavirus infection (Corona 19), the delinquency rate was only about 0.4%. This means that there has been an increase in the number of high-income self-employed people who find it difficult to repay loan principal and interest.
Previously, the Bank of Korea announced in its financial stability report in December last year that the delinquency rate for all self-employed workers at the end of September last year was 1.70%, the highest since the end of March 2015 (2.05%). At the same time, the delinquency rate of vulnerable self-employed people was 11.55%, the highest level in 11 years since the end of September 2013 (12.02%). Vulnerable self-employed people refer to borrowers who are multiple borrowers who have received loans from multiple financial companies and have low income or low credit scores.
An official from the Bank of Korea explained, “The recent increase in the loan balance of self-employed people has slowed compared to before, but the delinquency rate continues to rise,” adding, “This is the result of a decline in the income and credit rating of middle- and upper-class self-employed people in terms of income and credit.” He added, “It is time to provide recovery support to some vulnerable self-employed people who have a low chance of recovery.”
The number of self-employed people who are shutting down their businesses due to declining sales and receiving unemployment benefits is also increasing. According to the Ministry of Employment and Labor, the number of self-employed people who received unemployment benefits after closing their businesses from January to November last year was 3,319, which was more than in 2023 (3,248 people). Considering the worsening domestic economic downturn due to martial law and impeachment, some predict that the number of self-employed people who closed their businesses in the month of December last year will have increased further.
Meanwhile, as a result of the ‘Survey on Small Business Management Status and Policy Tasks’ conducted by the Korea Federation of Small and Medium Businesses on 800 self-employed people at the end of December last year, 73.8% of all respondents said they were receiving loans for business purposes, and 34.9% responded that the loan amount had increased compared to the previous year. Their average loan interest rate was 4.99% per year. The proportion of people paying high interest rates of 5% or more reached 66%.
Experts point out that it is urgent to prepare comprehensive measures for self-employed people, regardless of their high or low income. Seo Ji-yong, a professor at the Department of Business Administration at Sangmyung University, said, “Self-employed people who survived the COVID-19 crisis by taking on debt are experiencing greater difficulties due to the triple whammy of high interest rates, high inflation, and high exchange rates.” He added, “We need not only active support measures such as financial support and debt restructuring for them, but “It is time for strong measures to revive domestic demand,” he pointed out.
Reporter Kang Woo-seok [email protected]
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