"90% of Large Corporations Struggle to Manage Interest Payments with 0.25p Base Rate Increase"

, Survey on Financial Conditions Targeting CFOs of Top 1000 Manufacturing Companies by Sales

Among 10 major conglomerates, about 9 companies responded that it would be difficult to bear interest expenses even if the base interest rate is raised by only 0.25 percentage points.

The Federation of Korean Industries (FKI) commissioned Mono Research, a market research firm, on the 24th to survey the 'current status of funding conditions' targeting the top 1,000 manufacturing companies by sales (107 companies responded). As a result, 86.0% of the responding companies identified the critical base interest rate level at which they can cover interest expenses with operating profit as the current base interest rate level of 3.50%.

Specifically, the proportion of companies by critical base interest rate was surveyed as follows: ▲3.5% base interest rate (86.0%) ▲3.75% (1.9%) ▲4.0% (7.5%) ▲4.25% or higher (4.6%).

[Provided by Jeongyeongryeon]

In fact, after the base interest rate was raised by 3.0 percentage points over the past two years (from 0.5% in July 2021 to 3.5% in July 2023), the financial cost burden on companies increased by an average of 13.0%. Specifically, the largest proportion of respondents (30.9%) reported a 5% to 10% increase in financial costs compared to two years ago, followed by ▲10-15% increase (24.3%) ▲0-5% increase (14.0%) ▲20-25% increase (9.3%).

For the second half of this year, the outlook that corporate funding demand will increase (significantly increase + somewhat increase) at 35.5% far exceeded the outlook that it will decrease (significantly decrease + somewhat decrease) at 5.6%. The sectors expected to generate funding demand were led by facility investment (38.7%), followed by ▲raw materials and parts purchases (32.3%) ▲loan repayments (11.2%) ▲labor and administrative costs (10.5%).

When asked about difficulties in raising funds, companies most frequently cited exchange rate risk management (32.4%), followed by ▲loan interest rates and loan procedures (32.1%) ▲lack of policy financial support (15.9%).

As policy tasks for stable corporate fund management, companies pointed out ▲minimizing volatility in foreign exchange markets such as exchange rates (34.3%) ▲expanding policy financial support (20.6%) ▲supporting long-term financing (15.9%) ▲interest rate hikes considering the financial resilience of economic agents (15.6%).

Choo Kwang-ho, head of the Economic Research Division at FKI, said, "Recently, companies have significantly increased borrowings amid economic recession and deteriorating profitability, and with the continuation of high interest rates, financial costs appear to have increased considerably." He added, "Since funding demand is expected to increase in the second half of the year for purposes such as facility investment, careful monetary policy management is required to alleviate corporate financial burdens in the future, even from the perspective of revitalizing investment."

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