At least 14 out of 100 Korean enterprises are zombies who cannot survive on their own and hinge on debt relief because they barely earn to pay interests.

A report released by the Bank of Korea Thursday showed that 3,236 companies were identified as zombies last year by outside auditors.

High-risk firms refer to debtors whose interest coverage ratio has run below 1 for three straight years. Interest coverage ratio, a key measure of a firm’s ability to finance debt, is calculated by dividing a company’s earnings by its interest expenses. When a company‘s interest rate coverage ratio is below 1.5, its ability to meet interest expenses becomes questionable.

Companies falling under the high-risk category accounted for 14.2 percent last year, up from the number of 3,112 or 13.7 percent share in 2017.

Their share rose 0.7 percentage point to 10.6 percent among large companies and 0.5 percentage point to 14.9 percent among small- and mid-sized companies.

By sector, the percentages were high for food and accommodation (35.8 percent), shipbuilding (24.0 percent), real estate (22.9 percent), shipping (16.8 percent) and transportation (18.7 percent).

The number of firms whose interest coverage ratio fell below 1 reading for two straight years also rose to 20.4 percent in 2018 from 19.0 percent a year ago.

More companies were pushed to the brink of bankruptcy, with the transition ratio to high-risk jumping from 53.8 percent to 63.1 percent over the same period.

The outstanding debt of these companies totaled 107.9 trillion won ($90 billion) as of late 2018, up 7.8 trillion won from a year ago period. Their debt made up 13.8 percent of all loans from audited firms, up 0.4 percentage point.

The BOK explained that banks with a greater debt exposure to such high-risk companies were likely to have a high non-performing loans ratio, hurting their financial stability. Deteriorating business conditions could put these companies at serious risk of bankruptcy and pose as a risk to the financial sector.

By Kim Yeon-joo and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]