A rise in interest rates of between 200 and 300 basic points would increase, in the short term, the financial burden of companies between 1.9% and 5.6%, depending on the percentage of debt and loans that are refinanced short term. Specifically, if the refinancing of debts and short-term credits is not considered, this increase would be between 1.9 and 2.6 percentage points. Instead, if one assumes full refinancing of those itemsthe increase in the financial burden would be between 4.1 and 5.6 points.
This follows from the report published this Tuesday by the Bank of Spain under the title ‘An approach to the possible impact of the increase in interest rates on the financial situation of companies’. Under the assumption that the market interest rates will rise by 400 points (4%), the increase in the financial burden ratio would be 3 points without refinancing and 7.1 percentage points with full refinancing.
The study indicates that, as a consequence of these developments, the weight of corporate debt in the hands of companies with high financial pressure could increase appreciably. And it is that the strong inflationary pressures that have been produced in recent quarters in the Economic and Monetary Union (EMU) have caused a acceleration in the process of normalizing monetary policywhich has resulted in a very sharp rise in reference interest rates in the financial markets.
So, for example, the 12-month Euribor has increased by 258 basis points between December 31, 2021 and September 12 last, to stand at 2.08%. For its part, in the same period, the ten-year OIS rate has increased by 208 basis points. According to the body headed by Pablo Hernández de Cos, these rises in interest rates will be progressively transferred to the average cost of corporate debtbut also to the average remuneration of some of its financial assets -such as deposits and loans granted-, thus increasing both its expenses and its financial income.