Number of ‘marginal firms’ on rise

The number of Korean companies unable to service their debts with earnings has been on the rise since 2010, a central bank report showed Thursday, as concerns mount that the increasing number threatens the overall economy.

Korea had 3,126 marginal companies as of 2016, accounting for 14.2 percent of the 21,952 nonfinancial corporations subject to external auditing, according to the report by the Bank of Korea (BOK). A company failing to earn enough operating income to cover its interest expenses for three consecutive years is defined as marginal by local financial authorities.

The figure was 2,400 in 2010 and rose to 2,604 in 2011 and 2,794 in 2012. It peaked at 3,278 in 2015 but dropped slightly to 3,126 in 2016.

“The number of marginal companies fell off in 2016 from the previous year, but the pace of those in trouble has continued to grow, if the tally takes into account companies that closed down,” the report said.

In 2016, 443 companies shut down, up sharply from 297 closures tallied in 2015, while 504 companies have been on the list of marginal firms for the seven-year period.

The BOK report said 26.7 percent of the marginal firms are in the real estate and construction sectors, followed by 14.3 percent wholesale and food service firms, and 12.3 percent from the steelmaking, shipbuilding and shipping industries.

The highly indebted companies’ combined credit exposure was at 122.9 trillion won ($115.5 billion) as of 2016, taking up 15 percent of the total credit owed by all nonfinancial firms.

Out of the total, 53.9 trillion won was extended by state lenders, including the Korea Development Bank, in 2016, down from 75.8 trillion won in the previous year. Local banks lent 31.1 trillion won to marginal companies, while non-bank institutions gave 36.2 trillion won.

Yonhap