Over the past five years, self-employed individuals in South Korea have relied heavily on loans to withstand the economic impact of the COVID-19 pandemic and sluggish consumer spending. However, many are now reaching their financial limits. The photo shows a view of Myeong-dong, Seoul (Yonhap)
SEOUL, Feb. 16 (Korea Bizwire) — The number of self-employed individuals in South Korea who failed to repay their debts increased by 35% in 2024, as high interest rates and prolonged domestic economic stagnation deepened financial distress, new data shows. The burden was particularly severe for those aged 60 and older, with defaults in this group surging by 52%.
According to data released on February 16 by NICE Information Service, submitted to the National Assembly’s Political Affairs Committee, outstanding loans held by 3.36 million self-employed individuals stood at 1,122.8 trillion won ($774 billion) at the end of 2024, marking a slight increase from the previous year.
However, the number of self-employed borrowers who were delinquent on their loans for over three months reached 155,060, a sharp rise from 114,856 in 2023. The total amount of overdue loans exceeded 30.7 trillion won ($21.2 billion), reflecting a nearly 30% increase from the previous year.
Economic Struggles Behind the Rising Defaults
The surge in defaults is attributed to the prolonged economic downturn, which has severely impacted domestic consumption. Statistics Korea reported that retail sales in South Korea fell by 2.2% in 2024, marking the steepest decline since the 3.2% drop in 2003 during the country’s credit card crisis. Retail sales have now fallen for three consecutive years, marking the longest sustained decline since records began in 1995.
Many self-employed individuals initially took on substantial debt during the COVID-19 pandemic, relying on loans to keep their businesses afloat. While countries like the U.S. and major European nations provided direct financial support to small business owners, South Korea largely relied on loan extensions and additional credit.
“Many small business owners have not seen their customers return to pre-pandemic levels. As interest rates soared, those who had accumulated significant debt simply couldn’t keep up with their payments,” said Lee Hyuk-jun, head of the Financial SF Rating Division at NICE Credit Rating.
According to the “December 2024 and Annual Industrial Activity Trends” report released by Statistics Korea on February 3, retail sales, which reflect goods consumption, declined by 2.2%. This marks the largest drop in 21 years, since the 3.2% decline in 2003 during the credit card crisis. The photo shows a noticeably quieter-than-usual Myeongdong shopping district in Seoul. (Yonhap)
Senior Business Owners Hit Hardest
The financial strain has been particularly devastating for older self-employed individuals. At the end of 2024, outstanding loans held by business owners aged 60 and older reached 372.5 trillion won ($257 billion), increasing by 24.7 trillion won ($17 billion) from the previous year.
In contrast, outstanding loans declined across younger age groups, including those in their 20s (-1.9 trillion won), 30s (-6.5 trillion won), 40s (-12.9 trillion won), and 50s (-2.7 trillion won).
The number of delinquent borrowers aged 60 and older surged from 20,795 to 31,689, a 52.4% increase, outpacing all other age groups. Their overdue loan balance also jumped by 52.2% in a year, from 5.18 trillion won to 7.89 trillion won.
“Older self-employed individuals often run businesses out of necessity rather than choice, meaning they tend to have lower profit margins and are more vulnerable to economic downturns,” said Lee Soo-jin, a senior researcher at the Korea Institute of Finance.
As loan delinquency rates among self-employed individuals continue to rise, the number of businesses closing due to overwhelming debt burdens is steadily increasing. (Yonhap)
Government Announces Financial Assistance Measures
With the self-employed increasingly struggling to meet financial obligations, the government has announced plans to roll out relief measures through the banking sector starting next month.
A financial regulatory official stated, “We are preparing to launch a support program for delinquent and at-risk self-employed individuals by next month, with applications opening as early as the end of this month.”
South Korean banks are set to provide 7 trillion won ($4.8 billion) in financial assistance this year, targeting 250,000 struggling self-employed individuals through reduced interest rates and extended repayment terms. Over the next three years, total support is expected to reach 20 trillion won ($13.8 billion).
Self-employed borrowers facing financial distress may apply for tailored debt restructuring, including lower interest rates and repayment periods of up to 10 years. Additionally, a separate program will assist business owners who have closed their operations by offering low-interest, long-term repayment options.
While self-employed individuals grapple with mounting debt burdens, banks have continued to post record-high profits from interest income. South Korea’s four major financial groups—KB, Shinhan, Hana, and Woori—reported a combined interest income of 41.9 trillion won ($28.9 billion) in 2024, up 3.1% from the previous year, setting a new record.
* Note to editor: The KRW-to-USD exchange rate referenced in the article is based on the rate applicable on the date of publication.
Ashley Song (ashley@koreabizwire.com)
