Last year, the number of self-employed individuals in arrears on loans approached 150,000, marking a threefold increase in just two and a half years. This appears to be due to high loan rates and sluggish service industry conditions, which have deteriorated the debt repayment ability of self-employed individuals.
According to the 'Financial Stability Report (March)' published by the Bank of Korea on the 27th, the number of self-employed individuals in arrears surged from 48,000 at the end of the second quarter of 2022 to 148,000 at the end of last year.
During the same period, the loan arrears rate for self-employed individuals rose from 0.51% to 1.67%. In particular, increases in the arrears rate were pronounced in non-bank loans (1.12%→3.43%) and loans for vulnerable self-employed individuals (3.96%→11.16%).
The Bank of Korea identified high loan rates and income reductions due to sluggish service sector conditions as the background for the rising loan arrears rate among self-employed individuals. In reality, the average income per self-employed individual in arrears fell from 39.83 million won at the end of 2020 to 37.36 million won at the end of last year, while average loans increased from 200.5 million won at the end of 2020 to 229 million won at the end of 2024.
At the end of last year, the total number of self-employed borrowers, including those in arrears, was recorded at 3.115 million. This was a slight decrease from 3.131 million a year ago. The total loans for self-employed individuals increased from 1,052.2 trillion won to 1,064.2 trillion won.
As of the end of last year, 427,000 vulnerable self-employed borrowers, defined as low-income and low-credit borrowers among the multi-debt self-employed, were counted. Although the total number of multi-debt self-employed individuals decreased, low-income and low-credit borrowers increased by 21,000 and 47,000, respectively. Consequently, loans held by vulnerable self-employed individuals grew from 115.7 trillion won at the end of 2023 to 125.4 trillion won at the end of last year.
The Bank of Korea advised, "For borrowers who are making normal debt repayments, selective support for business and financial expenses should be provided, while debt adjustments through the New Start Fund for those in arrears and with failed businesses, as well as employment and re-establishment support for self-employed individuals seeking a comeback, are necessary."