Loan delinquency among self-employed borrowers triple in 5 years

One in 20 self-employed borrowers have fallen behind on loan repayments, as elevated interest rates and tepid consumer spending squeeze small businesses, contributing to a steady rise in delinquencies on individual business loans since the COVID-19 pandemic.

The figures underscore mounting strain among Korea’s self-employed borrowers, with defaults rising most sharply among those 60 and older — a group expected to turn increasingly to self-employment amid limited retirement security.

Data from NICE Information Service, a credit rating agency, submitted to Rep. Park Sung-hoon of the main opposition People Power Party showed Wednesday that around 166,500 business loan borrowers were more than three months overdue as of last year, categorizing them as delinquent.

The figure accounted for 5 percent of the roughly 3.3 million individual business loan borrowers. The number of delinquent borrowers among the self-employed has tripled over the past five years, rising from 51,000 in 2020 to about 155,000 in 2024.

The share of delinquent borrowers also rose from 2 percent in 2020 to 5 percent last year, indicating that many who borrowed during the ultralow rate period have struggled to repay their loans as rates rose after the pandemic.

The Bank of Korea (BOK) began cutting its benchmark rate in October 2024 but kept it unchanged for much of the second half of last year. The rate now stands at 2.50 percent, up from the 0.50-1 percent range between 2020 and 2021.

The number of delinquent borrowers surged among those ages 60 and older, climbing from about 7,200 in 2020 to about 38,200 last year — the fastest rise among all age groups.

Over the same period, the amount borrowed by the group jumped nearly fivefold, from 2.1 trillion won ($1.4 billion) to around 9.7 trillion won.

In a report released last December, BOK warned that increased lending to self-employed people 60 and older could pose broader financial risks, as many are heavily exposed to real estate fluctuations and clustered among more vulnerable borrowers.

In a separate report released in May last year, BOK said that many people 60 and older engage in self-employment to make ends meet because they lack stable employment after retirement. It projected that their numbers will rise to approximately 2.5 million by 2032, up about 79 percent from 1.4 million in 2015.

Weak domestic demand and sluggish consumer sentiment have weighed on the economy in recent years.

The retail sales index fell 3.3 percent last October from the previous month to 102.3, the sharpest drop in 21 months, according to the Ministry of Data and Statistics.

In a survey of 300 retail and distribution companies released last December, the Korea Chamber of Commerce and Industry projected that Korea’s retail market would grow 0.6 percent this year. Subdued consumer sentiment was the top reason, cited by 67.9 percent of survey respondents.

The weak outlook has coincided with a surge in business closures. According to the National Tax Service, more than 1 million businesses filed for closure in 2024 for the first time since the agency began tracking the data in 1995.

Last year’s survey by the Korea Federation of SMEs of 820 small business owners who received closure benefits found that their businesses lasted an average of 6.5 years, with nearly 40 percent shutting down within three years.

Worsening profitability and weak sales were the top reasons, cited by 86.7 percent of respondents.