This article appeared in "Signal," the capital markets compass, on July 13, 2026, at 3:30 p.m.
Corporate bond issuance by South Korea's large companies has fallen nearly 20 percent this year compared with a year earlier. The decline reflects a growing number of companies choosing bank borrowing over direct financing, as bond funding costs have surged amid rising interest rates and widening credit spreads. The market expects this shift in funding structure to continue for the time being.
According to the investment banking (IB) industry on the 13th, corporate bond issuance by large companies from the beginning of this year through the 10th of this month totaled 36.5952 trillion won. This represents a decline of about 19.4 percent from 45.4195 trillion won in the same period last year, shrinking to 2023 levels.
The composition of issuers has also changed. SK Group, considered a "big issuer" last year as it pursued large-scale refinancing, saw its bond issuance plunge from 7.9537 trillion won to 2.6470 trillion won over the same period. By contrast, Lotte Group and Samsung Group relatively increased their issuance, ranking near the top.
Large companies' funding methods appear to be shifting rapidly this year from bond-centered direct financing to bank-loan-centered indirect financing. While overall market rates rose in the wake of a sharp jump in Treasury bond yields, banks competed to expand corporate lending and limited the increase in loan rates. As a result, a "funding cost reversal" — in which bond funding rates exceed bank loan rates — has continued, significantly weakening large companies' incentive to issue bonds, according to analysts.
Indeed, large companies are reducing issuance of long-term bonds, which carry a greater burden from interest rate volatility, and instead increasing their use of commercial paper (CP), short-term bonds, and bank loans. Currently, the rate on three-year AA- rated corporate bonds remains in the 4.4 percent range, while corporate loan rates for large companies stay in the range of the high 3 percent to low 4 percent, making bank borrowing more favorable in terms of cost. "With interest rates continuing to rise this year, companies are not raising funds through corporate bonds," an IB industry official said. "They are shoring up liquidity through relatively cheaper bank loans."
Changes in banks' business strategies also support this trend. As financial authorities tightened household loan regulations, banks actively expanded corporate financing, which is interpreted as absorbing the funding demand of blue-chip companies that have left the bond market. The market expects large companies' preference for bank borrowing to continue for the time being, given the limited pace of rate declines and the high likelihood that banks will maintain their stance of expanding corporate lending.
Lee Kyung-rok, a researcher at Shinyoung Securities, noted that "large companies' concentration on bank loans is very similar to the situation in 2022, when a full-scale rise in market rates put an abrupt brake on corporate bond issuance." He added, "Whenever market benchmark rates faced upward pressure, the corporate bond market shifted into net redemption territory, and bank loans immediately filled the resulting gap in the issuance market."
