The Bank of Korea has kept its benchmark interest rate unchanged, but concerns are growing that high market interest rates and the possibility of further increases this year could exacerbate the funding disparities among companies. Firms benefiting from the semiconductor boom can better absorb rising interest burdens, while those facing domestic sluggishness and industry downturns may find increased borrowing costs directly impacting their operations.
As of October 14, the interest rate on three-year AA- rated corporate bonds was 4.56%, up 1.10 percentage points from 3.46% at the end of last year. The rate for 91-day commercial paper also rose from 3.30% to 3.66% during the same period, indicating a growing burden on corporate financing costs.
The net redemption of corporate bonds has also increased. In September, companies redeemed a net 3.4 trillion won in bonds, up from 900 billion won the previous month. The Bank of Korea attributed this rise to the ongoing issuance burden due to higher market interest rates and an increase in maturing amounts.
During its meeting on October 22, the Bank of Korea's Monetary Policy Committee decided to maintain the benchmark interest rate at 3.00%, but a tightening stance is expected to continue. The consumer price inflation rate in September was 2.9% year-on-year, exceeding the Bank's inflation stability target of 2%, while the core inflation rate also recorded 2.8%, suggesting ongoing inflationary pressures that could lead to further rate hikes in November.
If market interest rates remain high, the gap in funding conditions among companies may widen. Firms anticipating improved performance due to strong semiconductor exports may manage increased interest burdens better, while those suffering from domestic downturns may struggle with rising borrowing costs.
In 2024, the operating profit margin for domestic non-financial corporations rose to 4.6% from 5.2% last year, yet the proportion of companies with an interest coverage ratio below 100% increased from 42.8% to 42.9% during the same period. While overall corporate profitability indicators have improved, the share of companies unable to meet interest expenses has also grown.
Shin Hyun-sung, a senior researcher at the Korea Financial Research Institute, stated, "This year's corporate performance improvement has been concentrated in sectors like semiconductors and artificial intelligence, and the structural vulnerabilities of weaker sectors are unlikely to be easily resolved, suggesting that the polarization of corporate performance by sector will persist for the time being."
The disparity in corporate performance could also pose risks to the financial sector's stability. An increase in companies unable to manage interest burdens or a rise in defaults in vulnerable sectors could heighten the financial stability concerns for banks.
Seo Ji-yong, a professor at Sangmyung University, warned, "If high interest rates persist, the gap between companies could extend beyond mere differences in borrowing costs to affect their ability to secure funding. Companies that rely more on bank loans and lack collateral or creditworthiness are likely to face greater constraints, which could lead to disparities in investment and employment opportunities."
As disparities continue across sectors and company sizes, attention must be paid to how the deteriorating repayment capabilities of vulnerable companies may impact the financial sector's stability.
Moon Jeong-hee, chief economist at KB Kookmin Bank, noted, "The rapid increase in export dependence on semiconductors is amplifying the impact of fluctuations in specific industries on the overall economy. The key issue for future policy will be how to manage the financial burdens of vulnerable companies while spreading the warmth of economic recovery across all sectors."
* This article has been translated by AI.
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