Jung Manki, Vice Chairman of the Korea International Trade Association
"Loan interest rates up about 3% over 2 years
Annual interest burden increased by 32 trillion won"
KITA, KDB and K-sure 3% range loan projects
[Asia Economy Reporter Moon Chaeseok] Four out of ten companies were found to be paying interest equivalent to their operating profit. Loan interest rates have risen by nearly 3% over two years, and the annual interest burden increased by 32 trillion won.
Jung Manki, Vice Chairman of the Korea International Trade Association (KITA), announced this on the 22nd at the 5th Trade Industry Forum hosted by KITA at COEX in Samseong-dong, Gangnam-gu, Seoul. The forum's theme was "Diagnosing Financial Difficulties in the Export Industry in the Era of High Interest Rates and Challenges."
Vice Chairman Jung stated that central banks around the world raised benchmark interest rates to counter inflation, causing corporate loan interest rates to rise by nearly 3% over two years. He reported that the annual interest burden increased from 42.4 trillion won in 2021 to 74.7 trillion won last year.
According to the "Financial Difficulties Survey" conducted by KITA in December last year on 400 companies, 42% of respondents said their interest burden was similar to their operating profit, causing financial difficulties. 58% answered that the worsening financial conditions would continue for more than a year. The most desired financial support was relief from interest rate burdens.
Vice Chairman Jung said, "If many marginal companies suffer from interest burdens and liquidity shortages during an economic downturn, leading to large-scale corporate bankruptcies, the export industry ecosystem could partially collapse." He added, "KITA submitted a letter of financial difficulties to the Financial Services Commission last month."
The letter included eight proposals such as expanding fixed-rate loans, deferring principal repayments upon maturity, increasing loan limits for export growth companies, and offering preferential interest rates.
Kim Youngjin, head of KITA’s Macroeconomic Finance Team, said, "If measures included in the letter, such as a 1% preferential interest rate for export growth companies and lowering the export performance criteria for guarantee fund support, are implemented, they will greatly help export companies."
KITA plans to operate loan funds at an interest rate level of around 3% in cooperation with the Industrial Bank of Korea and the Korea Trade Insurance Corporation. The project will proceed with a scale of 100 billion won. It targets small and medium-sized enterprises with last year’s export performance between 500,000 USD (about 651.5 million won) and 10 million USD (1.303 billion won). The loan limit is up to 500 million won per company.
Jung Manki, Vice Chairman of the Korea International Trade Association, delivering the opening address at the 5th Trade Industry Forum. [Photo by Korea International Trade Association]
Experts expect the monetary authorities to raise the benchmark interest rate one or two more times. Kim Youngdo, senior research fellow at the Korea Institute of Finance, said, "The domestic benchmark interest rate is expected to rise one or two more times," adding, "Exchange rate volatility will also remain high for the time being."
Companies pleaded for at least temporary support policies.
Seo Giman, CEO of Beset, said, "It is difficult to secure funds because payments cannot be collected from order receipt to delivery, and the interest rate hike has made financial costs too high," adding, "A temporary policy to lower interest rates for small and medium-sized enterprises must be implemented."
Vice Chairman Jung said, "KITA will continue to discuss solutions with financial authorities to alleviate difficulties and actively strive to maintain the export industry ecosystem during the high interest rate period."
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