Overdue loans of self-employed in Korea up by nearly 80% in 2022

The amount of overdue loans of individual businesses in South Korea soared 76 percent last year and may hit 1 trillion won this year, raising concerns about default risk amid the weak economy and high interest rate environment.

According to documents obtained by Representative Yang Jung-suk, a member of the National Assembly’s National Policy Committee, from the Financial Supervisory Service on Wednesday, the amount of overdue loans of small- and mid-size enterprises (SMEs) with the country’s five commercial lenders stood at 1.6 trillion won as of December last year.

The lenders are KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup.

The overdue amount soared 46 percent from last year’s 1.1 trillion won in the previous year when combining the amount of individual businesses and SMEs.

The amount of overdue loans of SMEs is estimated to have exceeded 2 trillion won recently given that the average delinquency rate of corporate loans last month stood at 0.37 percent.

SME loans account for 80 percent of the lenders’ entire corporate loans.

The delinquency amount has been rising sharply since last year when interest rate hikes began.

The delinquency amount of the self-employed at the top five lenders stood at 548.6 billion won in 2019. After the outbreak of the pandemic, the amount fell to 424.3 billion won in 2020 and 413.8 billion won in 2021 in the wake of low interest rates and government stimulus. The overdue amount, however, surged by 76.2 percent on year to 729 billion won last year.

Overdue loans rise faster compared with the overall loan volume.

The loan balance of the self-employed at the five lenders climbed 16 percent to 314 trillion won last year from 270.8 trillion won in 2020.

“The data suggests that self-employed businesses have become insolvent at a rapid pace,” said an unnamed official from a commercial lender.

The delinquency amount of SMEs rose 28.5 percent on year to 916.8 billion won last year, despite years of decline from 2018 to 2021.

Regional banks in Korea also face the risk of high delinquency.

Overdue loans for the country’s six largest local banks amounted to 184.4 billion won last year, up 33.4 percent from a year ago. The surge came after the 3 years of decline between 2019 and 2021.

Commercial lenders are bracing themselves for a potential wave of defaults among self-employed businesses and SMEs. They are likely to come up with measures, such as extensions of loan maturity and short-term suspensions of interest rate payments.