Debt by the self-employed has been growing fast in South Korea amid protracted business slowdown and higher labor cost, posing as a ticking bomb to the financial sector.

According to the Financial Supervisory Service on Thursday, the outstanding loans held by the self-employed at second-tier cooperative banks stood at 58.2 trillion won ($49.8 billion) as of the end of last year, up 31.9 percent from a year ago. The figures more than doubled against two years ago, data showed.

They also owed total 13.7 trillion won to the depository banks as of late last year, gaining 31.7 percent from the previous year.

Self-employed debt in the non-top-tier lenders rose sharply following stricter loan guidelines in banks.

The risk of their colossal debt going sour could spill over to the financial sector.

The delinquency rate of loans to the self-employed was 0.61 percent as of late last year, up 0.1 percentage point from a year earlier. The delinquency rate of loans in non-primary banks went up 0.41 percentage point at 1.15 percent, and second-tier lenders up 0.62 percentage point at 2.66 percent.

Those owing to four or more institutions also are rising, with the ratio taking up 31 percent of all self-employed debtors as of late June, 2018. The ratio was 28.6 percent as of late 2015, according to a report by the Korea Institute of Finance.

By Kim Gang-rae and Lee Ha-yeon

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