South Korean household debt projected to decline amid rising self-employed delinquency

South Korea's household debt balance is projected to decrease for the first time this year, with an estimated reduction of 1.5 trillion to 2 trillion won in September. This decline is primarily driven by a sharp drop in credit loans, as demand weakened following a period of stock market volatility and was further aided by seasonal bonus payments used for debt repayment.

While the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—saw a combined decrease in household debt of approximately 1.28 trillion won, the impact varied by institution. Some banks have already exceeded their annual household debt growth targets, while others maintain significant lending capacity.

Simultaneously, the self-employed sector faces increasing financial strain. High interest rates and a sluggish domestic economy have led to rising delinquency rates among vulnerable self-employed borrowers. As of late June, the delinquency rate for vulnerable self-employed individuals reached 12.71%. While the Bank of Korea suggests this does not pose a systemic risk to the overall financial system, it could impact the asset quality of non-banking financial institutions.