BOK Expresses Concern Over 'Unusually High' Performance Bonuses in Semiconductor Sector

[Anchor]

Joining us for Thursday's Friendly Economy is reporter Han Ji-yeon. Reporter Han, did the Bank of Korea point to performance bonuses as a factor driving up inflation?

[Reporter]

The Bank of Korea specifically singled out the semiconductor sector.

It found that cases where high performance bonuses increase in specific sectors have a greater impact on inflation than when performance bonuses rise on average across all industries.

According to the Bank of Korea's analysis, an increase in the proportion of businesses paying performance bonuses in the top 10% range leads to a 0.05 percentage point rise in consumer prices five months later.

On the other hand, when average-level performance bonuses increased, there was almost no impact on prices.

The Bank of Korea is paying close attention to recent performance bonuses in the IT sector in particular.

In the first quarter of this year, nominal wages rose by 3.4%, and the contribution of performance bonuses in the IT sector accounted for 1.3 percentage points of that increase.

The Bank of Korea evaluated this as an unusually high level compared to the past.

It also projected that the impact is highly likely to grow even larger early next year.

Why is this phenomenon important? If top talent flocks to high-paying sectors, other companies will raise wages to retain their workers, and employees in other industries may use those high wages as a reference point to demand similar increases.

Additionally, the central bank analyzed that the income growth of IT workers could lead to an expansion in service consumption.

It noted that the recent scale of performance bonuses in the IT sector is highly unusual, warning that the actual impact on inflation could be greater than expected.

[Anchor]

Rising inflation is a key reason for interest rate hikes. Although the U.S. froze its benchmark interest rate today (June 18), with rate hikes still anticipated within the year, should we expect increased upward pressure on our rates as well?

[Reporter]

The Bank of Korea projects inflation in the second half of the year to be around 3%.

This is well above the inflation target of 2%.

Therefore, the market views a rate hike in July as highly likely.

The biggest reason the market expects a rate hike is last month's Monetary Policy Board meeting.

At that time, two out of the seven board members expressed the opinion that the base rate should be raised by 0.25 percentage points, and the median value of the Bank of Korea's dot plot also rose to 3%.

Governor Shin Hyun-song also stated that looking at growth, inflation, exchange rates, and real estate, the path forward is relatively clear.

Listening to yesterday's BOK press conference on price stability, the focus was clearly on raising rates, but the atmosphere did not suggest an immediate "big step"—meaning a 0.5 percentage point hike.

Let's hear directly from him.

[Shin Hyun-song / Governor of the Bank of Korea: Inflation is, in a way, the most important factor. You also mentioned a 'big step,' but when conducting monetary policy, the central bank never reacts to day-to-day market fluctuations...]

Currently, the prevailing market forecast is that the central bank will raise rates once in July and once more in October, bringing the base rate to around 3% by the end of the year.

Some are even raising the possibility that the terminal rate could reach around 4% if additional hikes continue in January and April of next year, and into the second half of next year.

[Anchor]

And I've never seen a 1,000-won coin before; this must be about coins and "penny stocks" (known as "coin stocks" in Korea).

[Reporter]

Public disclosures regarding reverse stock splits to artificially boost share prices are surging.

However, it has now become difficult to avoid delisting simply by boosting the share price.

Starting next month, if a stock price remains below 1,000 won for 30 consecutive trading days, it will be designated as an administrative issue, and if it fails to recover, it will face delisting.

As a result, companies are turning to reverse stock splits.

For example, if ten 100-won shares are consolidated into one share, the stock price becomes 1,000 won.

In fact, there have been 197 disclosures of reverse stock splits since last March.

Considering there were only 17 such disclosures in the entirety of last year, this is a more than tenfold increase.

The problem is that a reverse stock split only raises the share price, while the company's value and market capitalization remain unchanged.

Furthermore, the market capitalization thresholds will continue to rise going forward.

The threshold for the Kosdaq market will be raised to 20 billion won next month and 30 billion won next year, while the main Kospi market threshold will rise to 30 billion won next month and 50 billion won next year.

In fact, among the 21 Kosdaq-listed companies that decided on reverse stock splits this month, six already fail to meet the market capitalization criteria.

Consequently, an increasing number of companies are looking beyond reverse stock splits to expand their size through mergers and acquisitions (M&As).

While M&As in the past were mostly aimed at business expansion, recently, so-called "survival M&As" aimed solely at maintaining listing status have begun to emerge.
※ Please note: This article was translated by AI and may contain errors.