Nearly 2 out of 10 Korean businesses unable to pay debts with earnings

2020.09.14 13:17:43 | 2020.09.14 13:19:08

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Nearly two out of 10 companies in South Korea had been unable to service their debts with earning last year for three straight years, stoking concerns that the ongoing COVID-19 economic woes would drive many Korean firms, especially in the service sector, to the edge of collapsing.

A study conducted by the Federation of Korean Industries (FKI) on companies with assets of 50 billion won ($42 million) showed that 17.9 percent of them in Korea were marginal firms last year, meaning they had failed to earn enough operating income to cover their interest expenses for three consecutive years.

Korea ranked No. 5 among 24 Organization for Economic Co-operation and Development (OECD) countries that the FKI looked into for marginal businesses.

The average ratio of marginal companies in the 24 OECD member countries stood at 12.4 percent, with Japan having the lowest 1.9 percent of companies having difficulties covering debt interests with earning.

Four countries – Canada, Greece, the United States, and Spain – had a higher ratio of marginal firms than Korea last year. But the ratio of marginal firms in Korea has grown at the fastest rate of 2.5 percentage points since 2017. Over the same period, it fell 3.2 percentage points in Canada, 4.0 percentage points in Spain, and 5.1 percentage points in Greece, while it added 1.2 percentage points in the U.S.

The trouble was more apparent in the country’s service sector. Among Korean service businesses, a whopping 38.1 percent were marginal firms, nearly quadrupling the 10.1 percent average of the 24 OECD countries.

The next in line in Korea was real estate businesses with 30.4 percent, followed by transportation (24.3 percent) and medical/pharmaceutical/bioengineering (23.8 percent). The bottom on the list was food retail with 4.7 percent.

By Lim Hyung-joon and Cho Jeehyun

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