South Korean companies faced higher borrowing costs and weaker earnings by about a third in 2022 from a year earlier, prompting the country’s major business lobby group to call for monetary easing policies.

The Korea Chamber of Commerce and Industry on Monday released a report analyzing 2022 financial statements of 1,612 companies listed on the Korean bourse, including 159 conglomerates and 679 small and midsized firms.

"Operating profits have been greatly reduced and corporate debt burdens have snowballed, raising concerns for corporations. It is necessary to consider preemptive monetary policy to restore business vitality and boost the economy,” said Kang Seok-gu, head of the KCCI's research division.

The listed companies’ operating profit decreased by 34.2 percent during the period, in contrast to growth of 22.7 percent and 60.8 percent in 2022 and 2021, respectively, showing deteriorated business conditions as compared to when the COVID-19 pandemic was at its height.

"Companies' operating profits seem to have decreased significantly, especially large companies at the forefront of exports, at a time when exports are very poor, with the trade balance recording losses for 15 consecutive months since April last year,” the lobby group said in a statement.

Interest expenses that the companies have to pay increased by 31.9 percent on-year, the survey showed. The KCCI blamed a series of interest hikes for the surge in borrowing costs.

Of the 14.2 trillion won ($11 billion) in interest expenses incurred by companies in 2022, the amount gradually increased quarterly from 2.6 trillion won to 2.9 trillion won, 3.4 trillion won and 5.2 trillion won, chronologically, showing a similar trend to the upward trend of the benchmark interest rate.

The key rate rose from 1.25 percent in January last year to 3.25 percent in November the same year. The rate has remained unchanged at 3.5 percent since January this year.

Corporate stability has also deteriorated, according to the report. The debt-to-equity ratio of the surveyed companies rose 4.8 percentage points on-year to 79.9 percent.

According to the Bank of Korea, loans taken out by Korean companies from banks increased by 104.6 trillion won and corporate bond issuance fell by 5.9 trillion won last year.

"Although the demand for working capital rose sharply due to rising raw material prices, the corporate bond market froze, adding difficulties to companies that are already suffering from securing funds and managing debt,” the KCCI said.

Indicators that measure corporate activity also fell. Inventory accounted for 7.7 percent of their total assets, hitting the highest proportion in the past four years. The turnover rate of inventory, an indicator of the speed at which inventory leads to sales, was 10.6, down significantly from 11.2 in 2019, 11.1 in 2020 and 11.7 in 2021.

“Considering that the higher the proportion of inventory assets and the lower the turnover rate of inventory assets, the weaker the activity of companies, it can be interpreted that Korean businesses contracted more last year than in 2020 and 2021, when self-quarantine measures were in place nationwide,” the group said.