Korean companies are growing increasingly anxious as inflation concerns driven by high oil prices put pressure on both the United States and South Korea to raise interest rates. With burdens already mounting from a high won-dollar exchange rate and surging oil prices triggered by the Middle East war, concerns are emerging that rising rates could further inflate corporate funding costs and financial burdens.
According to financial markets on the 24th, the won-dollar exchange rate has remained at elevated levels around 1,500 won for several months. International oil prices have also shown strong momentum above $100 per barrel, affected by delays in negotiations between the United States and Iran.
On top of this, U.S. Treasury yields have surged. The U.S. 30-year Treasury yield hit 5.20% intraday this week, climbing to levels last seen just before the global financial crisis. Analysts attribute the move to weakening expectations for rate cuts by the Federal Reserve, as inflationary pressures and fiscal burdens stemming from the Middle East war intensify.
With the "triple-high phenomenon" of a high exchange rate, high oil prices and high interest rates likely to be prolonged, Korean companies are on edge. Rising rates inevitably increase the burden of loans for working capital and facility investment, while also pushing up the cost of corporate bond issuance. According to the financial sector, the small and mid-sized enterprise loan delinquency rate at Korea's five major banks stood at 0.65% as of the end of last month, eight times the delinquency rate for large corporations (0.08%).
Concerns are also rising that financial burdens will grow heavier for households that took out maximum loans and for marginal companies. According to the Korea Financial Investment Association, the three-year Treasury bond yield stood at 3.736% as of the 22nd. Compared to 2.935% at the start of the year, it has jumped 80.1 basis points, and is up 37.1 basis points from a month ago. The surge is interpreted as reflecting the impact of rising U.S. Treasury yields on the domestic market.
The problem is the expanding interest burden on households and companies. According to the Bank of Korea, household credit balance reached 1,993.1 trillion won at the end of the first quarter this year, the highest on record. This represents an increase of 14 trillion won from the end of last year.
Concerns about corporate distress are also growing. According to the Financial Supervisory Service, the won-denominated loan delinquency rate at domestic banks stood at 0.62% at the end of February, up 0.06 percentage points from a month earlier. This is the highest level since May of last year. The deterioration in soundness was particularly pronounced for loans to small and mid-sized enterprises and self-employed individuals. The delinquency rate on loans to small and mid-sized corporations jumped 0.13 percentage points from the previous month to 1.02%, while the delinquency rate on loans to self-employed individuals also rose to 0.78%.
Amid this, signals of base rate hikes both at home and abroad are being detected, and "debt-fueled investment" — borrowing money to invest — is emerging as a ticking time bomb in the stock market. According to the Korea Financial Investment Association on the same day, the credit loan balance in the KOSPI market stood at 26.3644 trillion won, the highest on record. The KOSDAQ market stood at 10.0179 trillion won. Credit loan balance refers to the amount investors have borrowed from securities firms for stock investment but have yet to repay.
Along with the KOSPI's upward trend, the scale of debt-fueled investment has also grown rapidly. Market concerns are mounting that losses could balloon in an instant if stock prices undergo a correction due to rate hikes.
