Delinquency rate in bank loans to self-employed in Korea on the rise

Delinquency rate among South Korean self-employed borrowers has risen amid grace on debt repayment and rollover during Covid-19 period, raising risk for Korean financial sector.

Korea’s major banks Shinhan, Hana, and Woori reported higher delinquency rate in loans extended to small or home office and self-employed businesses versus the previous quarter.

Hana and Woori Banks have seen on-quarter rises for the last three quarters. For Hana, the rate rose to 0.17 percent in the first quarter from 0.14 percent in the second quarter of 2021. In loan value, the amount rose 32 percent from 74 billion won ($58 million) to 98 billion won.

The delinquency ratio at Woori went from 0.14 percent to 0.18 percent during the same period while the loan amount jumped from 72 billion won to 96 billion won.

The delayed ratio at Shinhan added 0.01 percentage points in the first quarter to 0.15 percent.

KB Bank was the only bank with a quarter-to-quarter decrease. Its rate decreased 0.01 percentage points in the first quarter from the previous quarter’s 0.08 percent.

The overall delinquency rate in banking sector rose to 0.20 percent as of February from 0.16 percent in December.

The higher overdue ratio comes amid rise of 5.9 trillion won in the loans to self-employed and SOHO business this year.

Major lenders increased loans to self-employed merchants and small business owners as they had to reduce household loans due to the government’s restrictions. Four major banks’ total loans extended to self-employed or small business owners rose 2.3 percent from 253.1 trillion won at the end of last December to 258.97 trillion won.

Delayed recovery in private consumption has aggravated financial strains of small business owners and self-employed merchants. Although their debts are considered not bad due to the government’s aid for delayed repayment, they may go delinquent if economic downturn worsens.

As of the end of January, 133.4 trillion won of loans are under rollover or grace for repayment.

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