Interest rate hikes increase debt burden for South Korean self-employed

Rising interest rates are increasing financial pressure on South Korean self-employed borrowers and shifting investment strategies for corporations. The Bank of Korea has raised its base rate to 3.00%, marking two consecutive increases. This move is expected to significantly raise the annual interest burden for self-employed individuals, with an estimated increase of approximately 1.12 million won per person if rates rise by 0.50 percentage points.

Concerns are growing as delinquency rates for self-employed loans have reached their highest level in nearly 11 years, hitting 2.04% in the first quarter. The total amount of overdue loans has climbed to 22.3 trillion won. While the central bank raised the base rate, it maintained lower interest rates for small and medium-sized enterprise support loans to mitigate the impact on vulnerable borrowers.

In the broader market, the prospect of prolonged high interest rates—with markets pricing in an 88.8% chance of higher U.S. rates following the next FOMC meeting—is prompting analysts to prioritize companies with strong cash positions. Financial experts suggest focusing on firms with high net cash ratios, upwardly revised operating profit forecasts, and strong free cash flow to navigate rising debt costs.