If Interest Rates Rise 0.25 Percentage Points, Self-Employed Borrowers’ Interest Costs Will Increase by 1.8 Trillion Won

Risks in the Middle East are feeding into a situation of high exchange rates and high interest rates, raising concerns over loans to self-employed borrowers. As domestic and external uncertainties push market interest rates higher, these borrowers are expected to be hit hard. Analysts estimate that if interest rates rise by 0.25 percentage points, the interest burden on the self-employed will increase by 1.8 trillion won. There are also warnings that if delinquency rates climb among vulnerable self-employed borrowers, a surge in non-performing loans could follow, undermining the asset quality of banks and mutual finance institutions.
According to data the Bank of Korea (BOK) submitted to Park Sung-hoon of the People Power Party (PPP) on the 29th, a 0.25 percentage point increase in lending rates would raise the interest burden on self-employed borrowers by 1.8 trillion won. On average, the annual interest cost per person is projected to rise by about 550,000 won. The BOK derived this estimate by applying the share of variable-rate loans (about 64.5%) to the outstanding balance of loans to the self-employed at the end of last year. If lending rates go up by 0.50 percentage points, the total interest burden would grow by 3.5 trillion won, or 1.1 million won per borrower. With a 0.75 percentage point hike, the BOK calculates that interest costs would increase by 5.3 trillion won in total, or 1.65 million won per person.
At the end of last year, outstanding loans to the self-employed reached 1,092.9 trillion won, the highest level on record and up 0.8% from a year earlier (1,083.8 trillion won). Within that total, household loans to the self-employed fell 0.9% to 352.4 trillion won, while business loans rose 1.7% to 740.6 trillion won.
If lending rates rise by 0.25 percentage points, the interest burden on self-employed borrowers with multiple debts will increase by 1.1 trillion won. This would push up their annual interest costs by 640,000 won per person.
mj@fnnews.com Park Moon-soo Reporter