The Bank of Korea said on the 24th that the first-quarter delinquency rate for vulnerable self-employed borrowers was tallied at 12.6%. The double-digit delinquency rate has persisted for 10 straight quarters since the fourth quarter of 2023. Vulnerable self-employed borrowers are low-income and low-credit individuals who have loans from more than three financial institutions, totaling 342,500 people. Their loans alone amount to 117.2 trillion won. If the Bank of Korea starts tightening the money supply by raising the base rate, the accumulated bad debt could burst all at once. The Bank of Korea said, "If financial conditions turn tight or the services sector slows, the delinquency rate on self-employed borrowers' loans could rise, raising concerns that potential bad debt may materialize."
According to the Financial Stability Report for the first half of 2026 released that day by the Bank of Korea, the impact of rising interest rates was found to be larger for vulnerable self-employed borrowers. During the actual rate-hike period (the third quarter of 2022 to the third quarter of 2023), the delinquency rate among vulnerable self-employed borrowers rose by 5.1 percentage points. Of that, 4.1 percentage points were attributed to rate hikes. By contrast, the delinquency rate for ordinary self-employed borrowers rose only 0.2 percentage points during the same period.
Among all self-employed borrowers holding business loans in the first quarter, 3,201,000 people (loans of 1,095.5 trillion won) had a delinquency rate of 2.04%. The Bank of Korea analyzed that if a "pessimistic scenario" unfolds with rising rates and a downturn in the services sector, the delinquency rate could climb to 2.58%. In an optimistic scenario with lower rates, the delinquency rate falls to 1.94%.
The Bank of Korea assessed, "The share of vulnerable borrowers, whose repayment capacity is relatively low, has shown an increasing trend in both the number of borrowers and outstanding loan balance since 2022," adding, "The loan delinquency rate among the self-employed has also risen sharply, centered on vulnerable borrowers."
A bigger problem is that, as of 2023, more than half—52.2%—of the self-employed are micro businesses with annual sales under 50 million won. If micro self-employed borrowers shut down without repaying their debts, the burden is passed on across the self-employed sector. The exit rate for those under 50 million won was 16.1%, more than double that of the 50 million to 100 million won group (7.5%).
◇ The share of self-employed aged 60 and older is growing… more than half are low income
By age group, the number of young self-employed decreased while older age groups increased. The number of self-employed aged 60 and older rose from 1,842,000 in 2015 to 2,697,000 in 2025. In fact, 41.2% of all self-employed are 60 or older. In contrast, the number of self-employed aged 30 or younger fell from 1,127,000 to 887,000 over the same period.
Notably, liabilities held by those 60 and older totaled 405.7 trillion won in the first quarter, a sharp increase from 96 trillion won 10 years earlier, accounting for 36.7% of all self-employed loans. Of this, 167.5 trillion won were loans from nonbank financial institutions such as mutual finance institutions and savings banks.
The problem is that more than half—56.1%—of self-employed aged 60 and older are low income, in the bottom 30% by income. Their average loan size was 390 million won, larger than that of the young (220 million won) and middle-aged (340 million won). With little income and large debts, the likelihood of failing to pay principal and interest is high. The Bank of Korea noted, "Among older self-employed, the share of loans from nonbank institutions is gradually increasing," adding, "If business conditions worsen, bad debt could spread, particularly in the nonbank sector."
Real estate businesses are also emerging as a fuse for bad debt. Individual real estate business entities increased from 1,521,000 at the end of 2015 to 2,524,000 at the end of 2024. Individual business loans at domestic banks more than doubled over the same period, from 70.3 trillion won to 163.6 trillion won. Real estate is cited as a sector with low capital productivity, yet loan growth has been much stronger than in other industries.
Their average business loans (474 million won) and household loans (142 million won) are 2.2 times and 1.7 times higher, respectively, than in other industries, so a downturn in the real estate market could lead to bad debt. The ratio of interest to rental income (RTI) is below the regulatory level of 1.5 times for 18.7% of self-employed, and loans held by these borrowers account for 59% of all loans to the real estate rental industry.