Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Heat wave feared to worsen delinquency rates among small business owners
A restaurant owner boils soup in large pots amid scorching temperatures in Seoul, Aug. 5 Yonhap
By Yi Whan-woo
Scorching summer weather is making it harder for self-employed individuals in the restaurant and accommodation sectors to pay back the principal and interest on their loans in time.
They account for nearly one-third of the country's self-employed individuals, estimated at over 6 million. Many are still struggling with loan repayments after borrowing from banks to sustain their pandemic-affected businesses, according to the Korea Federation of Self-Employed Small Business.
During the peak summer holiday season, operators of small restaurants and motels are falling short of expected profits, as consumers are less inclined to travel domestically due to a heat wave following heavy monsoon rains.
Under these circumstances, data from the Industrial Bank of Korea (IBK) revealed that the rate of missed repayments among self-employed individuals surged to 1.72 percent from April to June.
It was the highest delinquency rate seen since the government began compiling relevant data in 2015 and was over twice the 0.73 percent rate seen in the manufacturing sector during the same period.
The Korea Federation of Self-Employed Small Business anticipates the delinquency rate will rise throughout 2024, given that the summer holiday season, along with Seollal, Chuseok, and year-end, is typically a peak sales period.
“Things could get worse as the heat wave persists while summer is nearing the end,” a federation staff member said, asking not to be named.
The staff member assessed that pent-up demand for overseas travel is exacerbating the difficulties faced by the restaurant and accommodation sectors.
Citing a survey from travel site Booking.com, the staff member noted that Koreans' online searches for international flights this summer increased by 275 percent compared to 2023.
The increase was 13 times higher than the average rise observed in all surveyed countries.
Cho Young-moo, a senior researcher at LG Business Research, suggested that a sluggish economy could worsen conditions for the restaurant industry, as consumers often reduce spending on dining out during economic downturns.
“In this context, the government should recognize the urgent situation faced by self-employed individuals and take measures to prevent their delinquency rate from undermining the broader economy,” the economist said.
The country’s self-employed individuals constitute 23.5 percent of its total workforce.
This ratio surpasses that of other major advanced economies, placing Korea seventh among comparable OECD member states as of 2022.
Data from the Financial Supervisory Service (FSS) revealed that the delinquency rate on bank loans among self-employed individuals reached 0.54 percent as of March, the highest level since December 2012, when it was 0.64 percent.
Other FSS data indicated that the business closure rate among self-employed individuals nationwide reached 9.5 percent in 2022, an increase of 0.8 percentage point from the previous year.