Companies in Crisis... Interest Burden Increases by 10 Trillion Won if Interest Rate Rises by 1%P

Higher Proportion of Variable Rate Loans Makes Them More Vulnerable

Surviving on Debt with Government and Financial Sector Support

[Asia Economy Reporter Kim Eun-byeol] Amid growing speculation about the Bank of Korea's 'August interest rate hike,' an increase in interest rates is expected to raise not only household debt but also corporate financial burdens by up to 10 trillion won. This is because corporate loans have a particularly high proportion of variable interest rates, making them more vulnerable to rate hikes. While large corporations are sufficiently raising funds through corporate bonds or the stock market, small and medium-sized enterprises (SMEs) and micro self-employed businesses are barely surviving through principal and interest repayment deferral measures. Consequently, there are concerns that these groups will emerge as weak links if interest rates rise in reality.

On the 12th, Asia Economy estimated based on the corporate loan scale of 1,402.2 trillion won at the end of the first quarter that if interest rates rise by 1 percentage point, the interest burden on corporate loans would increase by about 9.82 trillion won. In the case of household loans, it is known that if interest rates rise by 1 percentage point, borrowers' interest burdens increase by about 12 trillion won, indicating that the burden on corporate loans is also significant.

This is related to the fact that the proportion of variable interest rate loans among corporations reaches 70%. According to the Bank of Korea, as of June, the proportion of variable rate loans among newly issued corporate loans was 68.7%. This means that 7 out of 10 companies face increased interest burdens when rates rise. Although fixed-rate loans account for about 30% of corporate loans, unlike household loans with maturities of 10 or 30 years, corporate loan maturities are short?around one year?making them quickly susceptible to the shock of interest rate hikes.

In particular, there is a significant gap between large corporations and SMEs or micro self-employed businesses in corporate loans. While the overall corporate loan figures may not seem problematic, the burden felt by companies that are unable to repay their debts and are only extending them could be much greater.

Meanwhile, as tightening moves in the U.S. and other countries accelerate, volatility in the won-dollar exchange rate is also increasing. As of 10:46 a.m. on this day, the won-dollar exchange rate reached 1,157.92 won, hitting an intraday high. While large corporations have the capacity to respond to exchange rate volatility, SMEs may face significant shocks if their exchange rate forecasts in a particular direction prove incorrect.

This content was produced with the assistance of AI translation services.