[Rapid Surge in Corporate Loans] Interest Rates Soaring Quickly... 4 out of 10 Companies Have 'Over 5%'

Proportion of SME Loans with Interest Rates Above 5% Surges in One Year
Large Corporations' Loan Rates Reach Highest Level in 9 Years and 2 Months

7 out of 10 Companies Use Variable Rates... Interest Burden Increases

[Asia Economy Reporter Sim Nayoung] As corporate loans from commercial banks surge, interest rates are also rising rapidly. Following difficulties in issuing corporate bonds due to the Legoland incident, corporate demand for funds shifted to bank loans, influenced also by the rise in the base interest rate. For small and medium-sized enterprises (SMEs), which have relatively less financial power than large corporations, 4 out of 10 new loans from banks are at interest rates exceeding 5% per annum. Large corporations are also facing deteriorating loan conditions as interest rates have risen to their highest levels in over a decade.

According to the Bank of Korea Economic Statistics System on the 2nd, about 40% of SMEs that received new loans from deposit banks as of September had interest rates exceeding 5%. The largest portion, about 30%, had rates between 5% and less than 6%. Those with rates between 6% and less than 7% also rose to 7.5%. Compared to a year ago, the situation has completely changed. At that time, 90% of SMEs borrowed money at interest rates below 3% per annum.

A commercial bank official said, "There is no demand for corporate bonds even if issued, and corporate bond interest rates have risen so much that companies are turning to bank loans. After the Legoland incident, financial authorities have also urged banks to increase corporate lending, and if the US and Korea raise base interest rates this month, corporate loan interest rates will rise further."

The average loan interest rate for large corporations newly borrowing from deposit banks (as of September) also reached 4.38%, the highest level in 9 years and 2 months since July 2013 (4.38%).

The outstanding corporate loan balance at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) exceeded 700 trillion won at the end of October, reaching 704.6707 trillion won. This is an increase of 9.7717 trillion won compared to the end of September (694.899 trillion won). Nearly 10 trillion won was added in just one month.

The pace of increase is also accelerating. The monthly increase has grown by about 2 trillion won each month: 5.7528 trillion won in August, 7.4719 trillion won in September. Compared to the corporate loan balance at the end of last year, it has increased by 68.7828 trillion won, already surpassing last year's annual increase of 60.2596 trillion won by a wide margin.

The problem is that most corporate loans are variable interest rate loans, meaning that when the base interest rate rises, interest payments also increase, raising the burden of principal and interest repayment. According to the Federation of Korean Industries, as of September this year, more than 7 out of 10 companies (72.7%) had variable interest rate loans based on outstanding loan balances. Only about 3 out of 10 companies (27.3%) had fixed interest rate loans. The proportion of variable interest rate loans among new loans reached a high of 73.0% as of July this year.

As corporate loan interest rates rise, companies, whether large or small, inevitably face greater difficulties. According to a survey conducted last month by the Korea Chamber of Commerce and Industry targeting 307 domestic manufacturing companies on the 'Impact of Recent Interest Rate Increases and Corporate Response Status,' 61.2% of respondents said they are "actually experiencing difficulties due to high interest rates."

The most common difficulty companies face was "deterioration of financial conditions due to interest burden," at 67.6%. Regarding support measures they hope financial authorities will provide in response to the recent interest rate situation, companies most frequently cited "support for switching to fixed interest rates" (34.9%).

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