[Frozen Corporate Loans]③ "Interest Rates Near 10%" Corporations Struggle with Rates Higher Than Households

Since October Last Year, SME Loan Interest Rates Surpass Household Rates
Corporate Loan Rates Exceed 6% at 5 Major Banks

[Asia Economy Reporter Sim Nayoung] A branch of a commercial bank in Gimpo, Gyeonggi-do, where small factory owners who are major customers can reach within a 10 to 20-minute drive. The branch deputy manager is worried even as the new year begins. He said, "Since the second half of last year, interest burdens have increased, and in November, there were only one or two new corporate loans, and none in December," adding, "Even long-term customers just ask about the interest rates and shake their heads, reluctant to take out loans."

Loan interest rates for small and medium-sized enterprises (SMEs), including small business owners, have risen sharply. Starting from the fourth quarter of last year, they surpassed household loan interest rates. According to the Bank of Korea Economic Statistics System on the 10th, the interest rate on new SME loans at domestic deposit banks approached 6%. It jumped from 5.49% in October last year to 5.93% in November. Compared to household loan interest rates (5.34% → 5.57%) during the same period, the increase is steeper.

The corporate loan interest rates of the five major banks disclosed on the Korea Federation of Banks website show the same trend. As of November, except for Hana Bank (5.13%) and Kookmin Bank (5.83%), NH Nonghyup Bank (6.40%), Woori Bank (6.20%), and Shinhan Bank (6.05%) exceeded the 6% range. Compared to household loan interest rates of around 5%, this is more than 1 percentage point higher.

Reasons for the Sharp Rise in Corporate Loan Interest Rates
Banks use daily fluctuating bank bond rates as a benchmark, and corporate loan demand surged in October-November last year
At year-end, the increased rates rather suppressed new loans

Why have corporate loan interest rates risen faster than household loan rates? The primary reason is that corporate loan rates reflect bank bond interest rates, which change daily. A commercial bank official explained, "Compared to household loans, where the main product, mortgage loans, are priced based on the COFIX rate that changes once a month, the speed of corporate interest rate increases is naturally faster." Especially after the Legoland incident in October last year, the bond market fluctuated, and the bank bond (AAA 1-year) rate temporarily soared above 5%, pushing up corporate loan interest rates.

At that time, the drying up of bond demand made direct financing difficult for SMEs, prompting them to turn to banks, which also contributed to the rise in corporate loan interest rates. Although new loans briefly increased among large and small companies in October-November last year, financial authorities analyze that at year-end, the already high rates rather suppressed corporate loans.

A financial sector official said, "For SMEs or self-employed individuals, loan interest rates are set differently based on industry outlooks, and if the outlook is poor, the additional interest rate increases," adding, "Currently, interest rates are somewhat higher in sectors like real estate rental, food service, lodging, and retail, and compared to personal loans, corporate loan interest rates vary significantly by industry."

Already, small business loan interest rates are hovering around 10%. Lee Dong-seon (55), who runs a pork belly restaurant in Pocheon, Gyeonggi-do, received a notice on the 6th that the interest rate on his Saetdol loan from KakaoBank rose to 9.41%. Lee said, "The previous rate was 6.94%, which was already considerable, but seeing it rise close to 10% again is suffocating," adding, "I am looking for ways to refinance at a cheaper place."