1/3 of SME loans going to the self-employed

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1/3 of SME loans going to the self-employed

The amount of money borrowed by self-employed entrepreneurs accounted for 33.9 percent of all loans taken out by small and medium enterprises (SMEs) this year, data showed yesterday, raising worries it may weigh on government efforts to curb private sector debt.

Korean lenders extended loans worth 157.9 trillion won ($137.4 billion) to self-employed business-people as of the end of November, while total loans to SMEs reached 465.2 trillion won, according to the data from the Financial Supervisory Service.

The figure jumped by 12.3 trillion won in the January-November period, accelerating from a 5.4 trillion won gain in the same period a year earlier, the FSS said.

Growth also outpaced the annual increase of 9.1 trillion won in 2009 after the 2008 global financial crisis, the watchdog said.

Meanwhile, the delinquency rate on loans to self-employed borrowers hit 1.06 percent as of the end of October, gaining 0.2 percentage points from the end of last year, according to the FSS.

In recent years, the number of self-employed entrepreneurs has grown, a trend boosted by the number of post-Korean War baby boomers facing retirement and seeking alternative means of income. In Korea, baby boomers are considered those born between 1955 and 1963.

This year alone, the number of self-employed entrepreneurs jumped by 130,000, and most are reported to be in their 40s and 50s. The financial industry suspects many of the baby boom generation have taken out loans to launch their own businesses, such as cafes or other small shops.

Additionally, government pressure has contributed to this year’s spike in loans to those running their own businesses. Lee Sung-won, an official at the FSS, said that as banks that come under pressure to scale back their household loans, they have sought to make up the deficit by lending more money to entrepreneurs.

Since June, the central bank has kept the nation’s key borrowing rate at 3.25 percent as external uncertainties, including the sovereign debt crisis in Europe and fears of a possible recession in the United States, have grown. As a result of this loose monetary policy, expanding household loans have raised levels of risk in the local financial market and added to inflationary pressure, causing the government to intervene.


By Lee Ho-jeong, Yonhap [ojlee82@joongang.co.kr]

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