Loan Amount Nears 10 Trillion Won... Major Corporations Face Drying Up of 'Money Flow'

Bank Loans Reach Record High as of October
Corporate Bond Market Shrinks Due to Legoland Incident
Increase in Large Corporation Loans Surpasses That of SMEs
SK Group Issues First Long-Term CP

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jung] Last month, loans taken by large corporations from banks exceeded 9.3 trillion won, marking the highest level ever recorded for October. As the corporate bond market froze due to the Legoland incident, large corporations flocked to banks to secure emergency funding.

According to the Bank of Korea on the 10th, the outstanding loans to large corporations from banks last month increased by 9.3 trillion won compared to the previous month, reaching 216.5 trillion won. This represents the largest increase since related statistics began being compiled in June 2009 for the October period. The previous highest increase for October was 3.1 trillion won in 2015. During the same period, loans to small and medium-sized enterprises (SMEs) increased by 4.4 trillion won. It was the first time since March 2020, during the early stages of COVID-19, that the increase in bank loans to large corporations surpassed that of SMEs.

The sharp rise in bank loans to large corporations last month is due to the recently tightened corporate bond market. As rising raw material prices have increased companies’ cost burdens, demand for working capital continues, but the funding crunch has not eased, leading companies to raise funds through bank loans. Additionally, precautionary demand for liquidity is increasing as interest rates soar.

Corporate bonds saw a net repayment of 3.2 trillion won due to weakened investor sentiment and sluggish issuance. This is the largest amount since the Bank of Korea began compiling related statistics in January 2001. However, in the case of commercial paper (CP) and short-term bonds, net repayments of 400 billion won last month turned into net issuance of 3.1 trillion won.

Due to the weakened demand for corporate bonds, large corporations are turning their attention to the CP market. SK Group is issuing its first long-term CP worth 200 billion won today. The interest rates for 3-year and 5-year CPs are 5.629% and 5.745% per annum, respectively. It is unusual for a company with an AA+ credit rating to issue long-term CP, drawing attention from the financial investment industry. SK stated, "We have mainly issued short-term CP and corporate bonds so far, but as the capital market is tight and there are concerns about long-term deterioration, we are proactively issuing long-term CP to diversify funding sources."

According to the Korea Financial Investment Association, the 91-day CP rate for A1 credit rating closed at 5.02% per annum the previous day. The CP rate exceeding 5.0% per annum is the first time in 13 years and 10 months since January 14, 2009 (5.17%) during the global financial crisis. Joo Won, head of the Economic Research Office at Hyundai Research Institute, said, "As the corporate bond market freezes and companies struggle to secure funds, CP rates are soaring," adding, "This phenomenon is expected to continue until the first half of next year amid ongoing tightening policies."

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