Ominous 'Corona Bankruptcy'... Domino Fear if V-Shaped Recovery Fails

From January to October Last Year
41,257 Personal Bankruptcy Filings
Up 15.4% Compared to Two Years Ago
879 Corporations, Up 14.3% in One Year
Experts Say "Debt Surge Will Worsen This Year"

[Asia Economy reporters Kim Hyunjung and Jang Sehee] It has been revealed that corporate bankruptcy filings surged sharply at specific points when the novel coronavirus infection (COVID-19) resurged, raising calls for the government’s corporate support measures to be refined on a 'monthly' basis. With forecasts suggesting that vaccine distribution could begin as early as February or March this year, there are concerns that if the government halts policy fund disbursements and initiates loan recovery procedures, bankruptcy filings could increase further. The rapid rise in both corporate and personal bankruptcy filings is also heightening fears of a comprehensive domino effect of bankruptcies.

According to data on 'Corporate and Personal Bankruptcy Status Nationwide over the Past Three Years' submitted to Kim Do-eup, a member of the People Power Party, by the Court Administration Office on the 4th, 41,257 individuals filed for bankruptcy from January to October last year, marking a 15.4% increase compared to two years ago. The court’s acceptance rate of bankruptcy filings reached 89.2%. The Court Administration Office processes bankruptcy filings by either accepting them or dismissing, withdrawing, or handling them otherwise. This means that 9 out of 10 applications were deemed valid.

◆Only Things Will Get Worse This Year= The problem is that despite the government’s disbursement of policy funds through the 4th supplementary budget and disaster relief payments, as well as the postponement of loan repayments and tax deadlines, bankruptcy filings continue to rise steadily. Both individuals and corporations are sitting on unprecedented levels of debt. According to the Bank of Korea’s recently released 'Financial Stability Report (December 2020),' as of the end of the third quarter last year, household and corporate debt in the private sector amounted to 211.2% of nominal gross domestic product (GDP). In particular, household debt reached 1,682.1 trillion won at the end of the third quarter, a 7% increase from a year earlier. While household debt grew rapidly, disposable income increased by only 0.4% over the year, pushing the household debt-to-disposable income ratio to 171.3%, the highest since statistics began in the fourth quarter of 2002. The corporate situation is similar. According to corporate bankruptcy filings last year, a total of 879 corporations filed for bankruptcy from January to October, a 14.3% increase compared to the same period the previous year.

Looking at the average debt per household domestically, the debt scale exceeds 80 million won. According to the '2020 Household Financial Welfare Survey' released last month by Statistics Korea, the Bank of Korea, and the Financial Supervisory Service, households held an average of 445.43 million won in assets and 82.56 million won in debt as of the end of March that year. Household debt increased by 4.4% from 79.1 million won a year earlier, surpassing the previous year’s growth rate of 3.2%.

◆Domino Concerns If No V-Shaped Recovery= Experts agree that the overall economic vitality has declined due to COVID-19, and the situation is expected to worsen this year. It is virtually difficult for the economic trend to follow a steep 'V-shaped recovery' curve, and the government is likely to begin an exit strategy involving the cessation of monetary easing and the extension of various loan recovery deadlines within the year.

Professor Lee In-ho of Seoul National University’s Department of Economics said, "After the first resurgence, large-scale cluster infections continued, causing significant fatigue. Bankruptcies that began in restaurants and travel industries are spreading to manufacturing and suppliers, broadening the range of affected industries." He added, "Some individuals delay bankruptcy to maintain minimal economic activity, while companies may default, so personal bankruptcies could increase further. Corporations and individuals currently holding on are not in good shape but are barely surviving." Professor Sung Tae-yoon of Yonsei University’s Department of Economics pointed out, "Last year, economic conditions for companies and individuals were poor, and the worsening situation indicates that the real economy has been hit hard. Bankruptcy eliminates income sources, which further exacerbates economic difficulties."

Attorney Kim Bong-gyu of Moon & Kim Law Office emphasized, "Contrary to experts’ concerns, bankruptcy filings were not high last year thanks to government monetary easing and reduced pressure on loan recovery. However, the problem is this year." He expressed concern that "not only the construction industry, which deteriorated under the Moon Jae-in administration, but also various face-to-face service sectors are struggling, making this year’s bankruptcy crisis more severe." He added, "The declining trend in choosing rehabilitation after bankruptcy reflects this." An expert who requested anonymity stressed, "It is now time to examine monthly corporate and personal bankruptcy trends and prepare appropriate and specific tailored countermeasures. Especially, it is urgent to coordinate the timing of introducing various regulations or policies that could pressure corporations or at least listen to the field atmosphere and seek alternatives together."

This content was produced with the assistance of AI translation services.