Loan delinquency rate has been on surge in alarming rate from the hospitality and restaurant businesses in South Korea as the sector has been hard hit by coronavirus, raising alarm about chain bankruptcies and possible financial risk.

In a report to state conference, Ahn Young-jae, head of the platform center at Korea Enterprise Data (KED), highlighted the dangers of rising loan delinquency in the lodging and dining industries that has been weakening from spike in labor costs even before the arrival of COVID-19.

The report was made at a conference held by the National Research Council for Economics, Humanities and Social Science (NRC), a body under the Prime Minister’s office, on Thursday.

KED measures delinquency indicators by calculating rate of loans that are more than nine days overdue and five days or more in arrears for corporate credit card payment. The overdue rate shot up from 0.6 percent in December 2019 to 1.07 percent in April 2020 for mid-sized hospitality and restaurant businesses with asset value falling between 2 billion won ($1.6 million) and 7 billion won, and 1.25 percent to 1.54 percent for small businesses with less than 2 billion won worth assets.

The two industries shed the highest number of 166,000 jobs in March, according to the Ministry of Employment and Labor on Thursday. Educational service sector cut 93,000 jobs and business facilities management and business support service industry including tourism business 59,000.

Even before the virus breakout, the services segment has been struggling from the minimum wage hikes under pro-labor Korean government.

Lee Geun, a professor of economics at Seoul National University, said during the conference that the raised minimum wage is one of the three risk factors for the Korean economy. “Excluding the COVID-19 fallout, the increase in costs due to the minimum wage hikes is a short-term risk and heavy welfare spending is a long-term risk to the economy,” he said.

“The service sector accounts for 57 percent in the Korean economy, but it failed to make contribution to the economic growth in the first quarter due to the COVID-19 restrictions,” said Jung Gyu-chul, the economic forecast director at Korea Development Institute (KDI) at the conference.

According to data released by the Ministry of Trade, Industry and Energy on the same day, sales of offline retailers fell 5.5 percent in April from the same month a year ago. Department stores took the sharpest drop of 14.8 percent due to the plunge in sales in fashion division during social distancing.

Online retailers, on the other hand, saw their sales jump 16.9 percent on the back of brisk online purchases and food delivery by the stay-at-home consumers. Overall retail sales rose 3.9 percent.

By Baek Sang-kyung, Moon Jae-yong, Kim Yeon-ju and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]