Business loan rates break 5 percent for first time in a decade

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Business loan rates break 5 percent for first time in a decade

Stacks of won bills at a commercial bank in Seoul on Oct. 24 [YONHAP]

Stacks of won bills at a commercial bank in Seoul on Oct. 24 [YONHAP]

 
Rates on business loans from commercial banks broke 5 percent last month following the Legoland debacle and as the bond market remained seized up.
 
On average, the interest rate increased 0.61 percentage points on month to 5.27 percent last month, according to the Bank of Korea. This is the first time the figure has exceeded 5 percent since June 2012 and the fastest rise since Jan. 1998.  
 
The last time the rate jumped more than 0.5 percentage points was in Jan. 1998, during the Asian financial crisis.  
 
Loan rates for all companies rose. For big companies, loan rates rose 0.7 percentage points on month to 5.08 percent. The number hasn’t been over 5 percent since Aug. 2012.
 
Loan rates for small and mid-sized companies rose 0.62 percentage points to 5.49 percent.
 
“Loan rates for large companies rose due to interest rate hikes and the increase in demand for bank loans due to the shirking corporate bonds market,” said a spokesperson for the central bank.
 
Net redemptions of corporate bonds hit 3.32 trillion won ($2.5 billion) last month, the most since the data were first collected.  
 
Outstanding corporate loans rose 13.7 trillion won on month in October, the sharpest rise since June 2009.  
 
 
As companies are facing difficulties in financing, investor sentiment is weakening.
 
The central bank anticipates investment in plant and equipment will drop 3.1 percent next year. In the second half of 2023, it expects the figure will fall 6.7 percent on year.
 
Despite the government’s attempts to improve cash flow in the market, the market is still facing trouble.
 
Household loan rates rose 0.19 percentage points to 5.34 percent on month, the highest since June 2012. The pace was slower than that of corporate loans due to balance transfers.
 
Last month, 49.3 percent of household loans were priced at 5 percent or higher.
 
By loan type, mortgage rates rose 0.03 percentage points to 4.82 percent.
 
“The rise in financing cost has caused business activity to shrink, raising the possibility that the country’s economic growth rate will be lower than the central bank’s forecast of 1.7 percent,” said Seok Byoung-hoon, an economics professor at Ewha Womans University.  

BY AHN HYO-SUNG [cho.jungwoo1@joongang.co.kr]
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