Delinquency Rate for Low-Credit Self-Employed Surges Fivefold in 5 Years... High Interest Rates Raise Risk Warning

Delinquency Rate for Grade 9 Surges from 4.6% to 23.6%
Prime Borrowers Remain Below 1%, While High Interest Rates Fuel Rising Defaults Among Vulnerable Borrowers

The delinquency rate on loans for self-employed individuals with low credit scores has surged by four to five times over the past five years. Even before the boom in the semiconductor industry spreads warmth throughout the broader economy, the high interest rate burden is hitting vulnerable borrowers first.

Yonhap News

According to the financial industry on September 20, the delinquency rate on loans to self-employed individuals with a credit rating of Grade 9 at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reached 23.58% as of the end of August this year, soaring more than fivefold from 4.56% at the end of 2021.

The delinquency rate for Grade 7 self-employed borrowers also jumped nearly fourfold from 1.68% at the end of 2021 to 6.58% at the end of August. Among those with the lowest Grade 10 credit rating, the rate rose from 32.03% to 44.64% over the same period, meaning that nearly half of the total loan balance was overdue by more than one month.

In contrast, most Grade 1 and 2 self-employed borrowers either have no loans at all or have a delinquency rate close to zero. The delinquency rate for Grade 3, which represents relatively robust credit, actually fell from 0.07% at the end of 2021 to 0.05% at the end of August this year. Among Grade 5 borrowers—representing mid-level credit—the delinquency rate rose from 0.06% to 0.46%, but still remained below 0.5%.

The concern is that with already-high delinquency rates among low-credit self-employed borrowers, the recent global and domestic interest rate hikes could further increase their interest burden and risk of insolvency. The one-year bank debenture rate, a reference for personal and business loan rates, reached 4.008% per annum as of September 17—the first time it has exceeded 4% in two years and ten months—and climbed further to 4.033% just one day later.

There are also concerns that the increased default risk among vulnerable borrowers could raise entry barriers for loans across the entire banking sector.

An industry official said, "Delinquency among low-credit borrowers is so high that it affects the overall bank delinquency rate, and as the rate rises, it drags down the entire bank’s assessment. If this burden leads banks to tighten controls on the delinquency risk of other loans, not only unsecured credit loans but even secured, collateral-backed loans could become harder to obtain."

This content was produced with the assistance of AI translation services.