Corporate debt rises to 107% of GDP

Korea’s corporate debt rose sharply in the first quarter of 2011, data showed yesterday, spawning concerns that the high indebtedness may weigh further on weakening economic growth.

Local companies’ debt reached 107 percent of the country’s GDP as of end-March last year, well above a tipping point of 90 percent, according to the Korea Insurance Research Institute.

In 2010, the ratio came in at 104 percent.

The corporate debt ratio fell to 78 percent in 2004 after the country recovered from the 1997-98 Asian financial crisis. But the global financial crisis, driven by the collapse of Lehman Brothers, led the ratio to shoot up to 107 percent in 2008 and 110 percent in 2009.

The high debt level is seen as troubling because Asia’s fourth-largest economy is losing steam due to faltering exports and sluggish domestic demand, raising worries that corporate profitability is worsening, according to analysts.

The Korean economy grew 0.4 percent in the second quarter from the previous three months.

Exports, which account for about 50 percent of the economy, dropped 8.8 percent in July from a year earlier, the sharpest decline since September 2009.

According to the central bank, the ratio of listed firms’ debt-to-equity capital reached 101.2 percent as of end-March, up from 99.5 percent three months earlier, indicating that their financial health deteriorated.

The data came as Korea is already being beset by growing household debt, which stood at 911.4 trillion won ($807.5 billion) at the end of March.

The ratio of households’ debt to GDP reached 81 percent at the end of the first quarter last year, up from 80 percent at the end of 2010.

The ratio stayed below a threshold level of 85 percent, but many experts said that households’ high indebtedness is one of the biggest drags on the economy.

The ratio of government debt to GDP stood at 33 percent as of end-March 2011 after a new accent was placed on fiscal health, moving up from 31 percent at the end of 2010, data showed.

The ratio stayed below an average of 100 percent in public debt held by OECD member nations, the report showed.

Yonhap