The delinquency rate on loans held by vulnerable self-employed borrowers topped 12%, more than 18 times the rate for other self-employed borrowers. While overall growth in self-employed lending has slowed sharply, bad debt is becoming entrenched among vulnerable borrowers — those juggling loans from multiple lenders while also having low income and low credit scores.
The delinquency rate for vulnerable self-employed borrowers stood at 12.71% at the end of the second quarter, according to a Financial Stability Report released by the Bank of Korea on the 22nd. The rate for non-vulnerable self-employed borrowers was 0.69% over the same period, making the vulnerable group's rate 18.4 times higher. It was also more than six times the 1.99% rate for all self-employed borrowers. "Relatively high delinquency rates are persisting, centered on vulnerable self-employed borrowers and non-bank lenders," the BOK said.
The delinquency rate for vulnerable self-employed borrowers rose steadily from 5.13% in the first quarter of 2022 to a peak of 13.27% in the first quarter of 2025. It has since registered 12.55% in the second quarter of 2025, 12.42% in the third, 12.14% in the fourth, 12.68% in the first quarter of this year and 12.71% in the second — remaining in the 12% range for five straight quarters.
The number of vulnerable self-employed borrowers and the loans they hold also increased. At the end of the second quarter, they numbered 411,000, or 12.8% of all self-employed borrowers, up 7,000 from 404,000 at the end of last year. Their outstanding loans rose by 4.7 trillion won over the same period, to 119.2 trillion won from 114.6 trillion won. That accounts for 10.9% of all self-employed lending.
The trend runs counter to overall self-employed borrowing. Self-employed loans totaled 1,098.5 trillion won at the end of the second quarter, up 5.6 trillion won from the end of last year, but growth from a year earlier came to just 0.8%. That compares with a growth rate of 14.7% in the first quarter of 2022. While the pace of overall loan growth is easing, the number of vulnerable borrowers and their debt are rising instead — a sign that the quality of self-employed debt is deteriorating.
Most striking was the pattern of borrowers already in arrears failing to climb out for extended periods, rather than a wave of new delinquencies.
The rate at which vulnerable self-employed borrowers newly fell into arrears declined to 3.60% in the second quarter of this year from 4.92% in the first quarter of 2024. That measure tracks the share of borrowers who had been repaying loans normally through the previous quarter before slipping into delinquency.
The share of borrowers stuck in existing arrears, by contrast, is climbing again. For vulnerable self-employed borrowers, it rose to 82.3% in the second quarter from 82.1% in the first. That is 4.3 percentage points higher than the 78.0% rate for non-vulnerable self-employed borrowers. The rate for all self-employed borrowers also rose to 80.9% in the second quarter from 78.4% at the end of last year.
The BOK said the recent rise in self-employed delinquency rates was driven mainly by existing arrears dragging on, compounded by an increase in new delinquencies among vulnerable borrowers. Vulnerable borrowers are more likely to fall behind when their repayment conditions worsen, the central bank said, and once they do, they take longer to return to normal repayment.
The burden of bad debt remains high not only among the self-employed but across vulnerable household borrowers as well. The delinquency rate for vulnerable household borrowers came to 10.39% in the second quarter of this year. It has stayed in double digits for 10 consecutive quarters since reaching 11.42% in the first quarter of 2024. The overall household loan delinquency rate, by contrast, fell to 0.98% in the second quarter from 1.00% in the first — a clear gap between the overall average and vulnerable borrowers. Vulnerable borrowers' share of all household borrowers also edged up to 6.8% from 6.7% over the same period.
The concern is what comes next. The BOK raised its base rate by 0.25 percentage point each in July and August this year. Because the latest delinquency figures for self-employed and household borrowers are as of the end of June, the direct impact of those rate increases has yet to show up. Still, with market rates and benchmark lending rates having begun rising in the second half of last year, borrowers' interest burdens are already building gradually.
The BOK's analysis found that the shock from rising rates hits vulnerable groups faster. When the base rate rises, bank lending rates on outstanding balances react most strongly about five months later, while delinquency rates on bank loans to households and businesses overall peak in impact about 15 months later. Delinquency rates for vulnerable household borrowers and small and midsize enterprise loans, by contrast, responded most strongly at around nine months.
