"Interest Burden and Investment Delays... 6 out of 10 Companies Face High-Interest Rate Damage in Reality"

KCCI Survey of 307 Domestic Manufacturing Companies
Acceptable Benchmark Interest Rate Level is 2.91%
Companies "No Special Measures"... Policy Support Needed

Difficulties in Business Activities Due to Interest Rate Hikes (Multiple Responses). Source: Korea Chamber of Commerce and Industry

[Asia Economy Reporter Choi Seoyoon] As another aggressive interest rate hike is expected in the United States, a survey revealed that domestic companies are experiencing negative impacts on their business activities, such as investment delays, due to high interest rates.

According to the "Impact of Interest Rate Hikes and Corporate Response Survey" recently conducted by the Korea Chamber of Commerce and Industry targeting 307 domestic manufacturing companies, 61.2% of the respondents answered that they are "actually experiencing difficulties due to high interest rates." Among them, 26.7% said the difficulties are "very severe." Only 12.7% of companies responded that they have "no difficulties."

The most common difficulties faced by companies were "deterioration of financial conditions due to interest burden" (67.6%), followed by "delays and reductions in facility investment" (29.3%) and "poor business performance due to reduced consumption" (20.7%).

The breakeven benchmark interest rate level companies can endure is 2.91%

Considering the current operating profit companies earn and the level of production and operating costs incurred, the benchmark interest rate level that companies can endure to realize profits was calculated to be "2.91%." The largest portion of companies (41.7%) selected 3.00%, but 23.1% of companies also chose the current interest rate level of 2.50%. The weighted average of all responses was 2.91%.

It is interpreted that companies are feeling a high sense of crisis as they bear interest cost burdens amid a high-cost economic structure caused by recently soaring raw material prices and exchange rates. In fact, even at the current benchmark interest rate (2.50%), market loan interest rates exceed 5-6%, and if the benchmark interest rate surpasses 3.00%, market interest rates are expected to rise above 7-8%.

More than half of the respondent companies felt that the pace of the 2.0 percentage point (p) increase in the benchmark interest rate over the past year was fast. Companies that chose "somewhat fast" (38.4%) and "very fast" (19.2%) greatly outnumbered those that selected "somewhat slow" (4.6%) and "very slow" (1.3%).

Companies expected the recent trend of interest rate hikes to continue for some time. The largest portion (38.8%) anticipated it would "continue until the first half of next year," while a significant number also forecasted it would last until "the end of next year" (17.6%) or "until 2024" (8.5%).

Policy support needed such as fixed-rate conversion, extension of repayment deferrals, and adjustment of interest rate hike speed

Despite the reality of high interest rate damage, only 20.2% of companies have prepared countermeasures at the corporate level. Especially among small and medium-sized enterprises, only one out of ten responded that they are "preparing countermeasures." The measures companies are preparing include "entering an emergency management system such as cost reduction," "conversion to fixed interest rates," and "loan repayment deferrals."

Regarding support measures they hope for from financial authorities amid the recent interest rate situation, companies most frequently selected "support for fixed-rate conversion" (34.9%), followed by "extension of repayment deferrals" (23.5%) and "adjustment of interest rate hike speed" (22.1%).

Kim Hyunsoo, Director of Economic Policy at the Korea Chamber of Commerce and Industry, said, "Preemptive monetary policy is inevitable to stabilize prices and exchange rates, but the result is a dilemma where it becomes a burden on companies and leads to contraction of corporate activities. Since companies actively engaged in business restructuring and new business investments after COVID-19, as well as small and medium-sized enterprises with lower credit ratings, feel a greater debt burden, support measures to overcome the high-cost economic situation should be implemented in parallel to prevent sound companies from falling into liquidity crises."

Presence of countermeasures against interest rate hikes. Source=KCCI

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