SME Sector "Concerns Over Base Rate Hike... Liquidity Crisis May Follow"

Governor Lee Ju-yeol of the Bank of Korea Striking the Gavel
(Seoul=Yonhap News) Lee Ju-yeol, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee plenary meeting held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 14th. 2022.1.14 [Provided by the Bank of Korea. Resale and DB prohibited]
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[Asia Economy Reporter Junhyung Lee] On the 14th, the Financial Monetary Policy Committee of the Bank of Korea raised the base interest rate by 0.25 percentage points from 1% to 1.25%, prompting concerns from the small and medium-sized enterprises (SMEs) sector.

The Korea Federation of SMEs expressed its concerns in a statement on the same day, saying, "We express our concern over the Financial Monetary Policy Committee's decision to raise the base interest rate," and added, "Domestic SMEs and small business owners have been struggling day by day with debt due to nearly two years of ongoing COVID-19 and stringent social distancing measures." Furthermore, it stated, "The three base interest rate hikes since last August are expected to increase the financial cost burden on SMEs and small business owners, exacerbating their difficulties."

The Korea Federation of SMEs pointed out that SMEs are vulnerable to interest rate increases. It stated, "When the base interest rate rises by 1 percentage point, interest expenses relative to operating profit increase by 8.48 percentage points for SMEs," and added, "(This means) SMEs have a structure vulnerable to interest rate hikes, and continued rate increases could lead to a liquidity crisis."

The need for follow-up measures such as loan maturity extensions was also emphasized. The Federation said, "The government and financial sector should closely monitor the loan interest rates and funding supply situation for SMEs and small business owners to implement active financial support policies that can mitigate the shock of interest rate hikes." It also expressed hope that "the loan maturity extensions, which are set to end at the end of March this year, will be further extended until the COVID-19 situation stabilizes, and that follow-up measures will be prepared accordingly."

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