Debt to Korea’s self-employed individuals at record $780 billion

[Photo by MK DB]

Loans to self-employed borrowers have continued to grow in double digits, exceeding 1,000 trillion won ($780 billion) for the first time in Korea as the pandemic‘s impact on living and working conditions becomes more evident.

Loans to self-employed individuals were tallied at 1,014.2 trillion won at the end of September, up 14.3 percent from a year ago, according to data from the Bank of Korea on Thursday.

The quality of borrowing is also poor. Money borrowed from non-bank lenders, which charge very high-interest rates, grew by 28.7 percent from a year ago, versus a 6.5 percent increase for loans from commercial banks.

When comparing before and after the pandemic, total loan volume increased by 48 percent from 684.9 trillion won in the fourth quarter of 2019. The number of self-employed people who borrowed money also increased by 61.7 percent from 1.9 million at the end of 2019 to 3.1 million at the end of the third quarter of this year.

The central bank said that the risk of insolvency for the self-employed will increase if the government’s temporary financial support comes to an end amid rising interest rates and slowing economic recovery. A total of 39.2 trillion won in loans extended to self-employed people are classified as risky at the end of next year. If the benchmark interest rate, which is currently at 3.25 percent, rises to 3.75 percent, the loan delinquency rate for vulnerable self-employed borrowers will soar to 9.3 percent, according to the BOK analysis.

Total household and corporate debt amount to 223.7 percent of the country’s gross domestic product as of end-September.