Announcement of Research Service Results by Korea Federation of SMEs
"Temporary Liquidity Support Needed for Selected Companies"
[Asia Economy Reporter Kim Heeyoon] A study has found that when the base interest rate rises by 1 percentage point (p), the interest expenses borne by small and medium-sized enterprises (SMEs) as a proportion of operating profit increase by 8.45%p.
On the 25th, the Korea Federation of SMEs announced that this result was revealed through a research project titled "The Impact of Inflation, Quantitative Easing Reduction, and Interest Rate Hikes and Future SME Support Policy Directions," jointly conducted by Professor Jeon Sangkyung and Professor Kang Changmo of Hanyang University.
This study was conducted by analyzing panel data from 21,415 externally audited manufacturing companies (20,255 SMEs and 1,160 large and medium-sized enterprises) from 2000 to 2020.
According to the research results, when the base interest rate rises by 1%p, the interest expenses borne by SMEs as a proportion of operating profit increase by 8.45%p.
Based on the 2020 sample, SMEs spend about 63% of their operating profit on interest expenses. Accordingly, when the base interest rate rises by 1%p, interest expenses are expected to increase to 72% of operating profit.
Furthermore, when the producer price inflation rate rises by 1%p, the decrease in operating profit for SMEs was 0.27%p, which is three times that of large enterprises (0.09%p). Additionally, while the net profit of SMEs decreased by 0.26%p, the net profit of large enterprises was confirmed to have increased by 0.02%p.
In particular, when raw material prices rise, SMEs have relatively lower price pass-through ability compared to large and medium-sized enterprises, which was analyzed as the cause for not reflecting the increase in raw material prices in delivery prices.
Professors Jeon Sangkyung and Kang Changmo emphasized, "The impact of inflation and interest rate hikes is expected to be greater for non-externally audited SMEs and small business owners not included in the sample of this research project," adding, "In a situation where additional cost increases are expected due to global supply chain disruptions and increasing demands for carbon neutrality, it is necessary to enhance the response capabilities of SMEs."
They continued, "To this end, policy fund support for sound SMEs and selective support for companies temporarily facing liquidity crises due to cost increases are necessary," and pointed out, "Priority support is needed for SMEs in industries where price pass-through of cost increases is difficult and that are particularly vulnerable to raw material price hikes."
Yang Chanhoe, Director of the KBIZ SME Research Institute at the Korea Federation of SMEs, said, "Although there is strong pressure for interest rate hikes, raising the base interest rate at this point will increase the interest expense burden on SMEs," and "Efficient support of policy funds is needed to prevent bankruptcies of sound SMEs while providing additional credit guarantees and other policy fund support to companies with high recovery potential."
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