Even if the basic domestic rate is raised by 0.25 percentage points from the current 2.5%, it is predicted that half of the large manufacturing companies will not be able to cover interest costs with operating profit.
On the 3rd, the Korea Federation of Entrepreneurs commissioned Mono Research, a market research agency, and announced the results of a financial situation perception survey conducted from the 8th to the 18th of last month for the financial managers of the 1,000 largest manufacturing companies.
According to the FKI, the threshold for the base interest rate at which responding companies can afford interest costs with an operating profit is 2.6% on average.
In addition, the ratio of companies with a base interest rate threshold of 2.25% or less was 37.0%. This means that more than 3 out of every 10 companies are unable to cover interest costs with their operating profit below the current base rate (2.5%).
The FKI predicted that if the Bank of Korea took the baby step of raising the base rate by 0.25 percentage points at the Monetary Policy Committee to be held on the 12th, about 50% of large companies would become vulnerable companies that could not pay interest with their operating profit. In addition, it has been estimated that if the basic interest rate becomes 3.0% as a major step by raising 0.5 percentage points, the number of vulnerable companies will increase to 6 out of 10 (59.0%).
Respondents predicted that the base interest rate would rise to 3.0% and 3.4% at the end of this year and next year, respectively, despite such an increase.
Respondents pointed to the ‘three peaks’, such as high inflation, high exchange rates, and high interest rates, as reasons for the worsening financial situation.
The impact of interest rates, such as an increase in bank lending rates, was the largest at 47.0%, followed by an increase in raw material prices (23.0%) and an increase in the exchange rate (17.0%).
Contrary to the worsening financial situation, 37.0% of the companies that responded predicted that the demand for money would increase by the end of this year. In the sector where the demand for money is expected to occur, the purchase of raw materials and parts accounted for the most, at 36.7%.
Choo Gwang-ho, head of FKI’s economic department, said, “An additional rate hike is inevitable in a situation where the interest rates in the United States and Korea are reversed.”
By Kim Byung-chae, staff reporter
