"It’s already tough, but..." Self-employed owners sigh as loan rates edge up

As market interest rates continue to rise, concerns over defaults among so-called debt-heavy borrowers and self-employed owners are resurfacing. In particular, analysts say the growing share of variable-rate loans in the banking sector could make borrowers more vulnerable to the impact of higher rates.
According to the financial sector on the 18th, mixed-type mortgage rates at the Five Major Commercial Banks — KB Kookmin Bank, Shinhan Financial Group, Hana Bank, Woori Bank and NH NongHyup — were estimated at 4.45% to 7.05% per year. After the upper end of the range surpassed 7% at the end of March and then began to fall, it climbed back above 7% in just two months.
During periods of rate hikes, repayment burdens for variable-rate borrowers increase quickly. That is because benchmark rate increases or market rate rises are reflected in loan rates almost immediately. The larger the loan, the heavier the burden borrowers feel.
The problem is that the share of variable-rate loans has risen sharply. Data from the Bank of Korea (BOK)'s Economic Statistics System showed that variable-rate loans accounted for 64.5% of new household loans extended by banks in March. That was up steadily from 35.2% in July last year. Compared with February, the share rose by 7.6 percentage points. In new mortgage lending, the share of variable-rate loans also jumped from 28.9% in February to 39.2% a month later, an increase of 10.3 percentage points.
Borrowers who bought homes with debt-heavy loans are expected to face a sharp rise in repayment pressure. According to data Park Sung-hoon of the People Power Party (PPP) received from the BOK, the average bank household loan balance per person in their 30s exceeded 100 million won for the first time at the end of last year. With the recent slowdown in the property market and declining transactions, concerns over falling asset values are also growing.
Self-employed owners are not in a comfortable position either. Loan burdens accumulated since the COVID-19 pandemic have not eased, and higher interest rates are adding to the strain. The BOK estimates that self-employed lending stood at about 1,093 trillion won last year.
As weak domestic demand and subdued consumption continue to slow sales recovery for self-employed businesses, there are concerns that rising financing costs could increase default risks, especially among marginal borrowers. The recent upward trend in delinquency rates also reflects this pressure. As of the end of April, the delinquency rate for small and medium-sized enterprises at the Five Major Commercial Banks stood at 0.65%, up 0.07 percentage points from the previous month.
The recent rise in domestic market rates has been driven by higher U.S. Treasury yields. On the 16th local time, the U.S. 10-year Treasury yield climbed above 4.5%. The increase came amid persistent inflationary pressure and concerns over rising oil prices.
The five-year bank bond yield, which serves as the benchmark for mixed-type mortgage rates at banks, recently rose to 4.279%. That is the highest level in about two years, since mid-April 2024. Analysts say higher U.S. Treasury yields and volatility in global bond markets have also affected domestic market rates.
COFIX, the benchmark for variable-rate mortgage loans, is also on the rise. According to the Korea Federation of Banks (KFB), COFIX based on new funding in April stood at 2.89%, up 0.08 percentage points from the previous month.
[email protected] Seo Ji-yoon Reporter