Signs of Distress in Companies Decreased by 21% After COVID-19... Effect of 'Life-Support Treatment'

The Scale of Credit Extensions to Companies Showing Signs of Distress Is Not Large
Minimal Impact on the Soundness of Domestic Banks

[Asia Economy Reporter Park Sun-mi] Thanks to financial support measures such as maturity extensions and repayment deferrals after COVID-19, the number of companies showing signs of insolvency has decreased by 21% compared to the pre-pandemic period.

On the 16th, the Financial Supervisory Service announced that creditor banks conducted regular credit risk assessments and selected 160 companies as signs-of-insolvency companies. There were 79 companies rated C, an increase of 13 from the previous year, while those rated D numbered 81, a decrease of 10, resulting in a net increase of 3 companies compared to the previous year. However, while large corporations decreased by 1 to 3 companies, small and medium-sized enterprises (SMEs) increased by 4 to 157 companies. Among the companies showing signs of insolvency, metal processing accounted for the largest number with 21 companies, followed by machinery equipment (17 companies) and automobile parts (16 companies).

Thus, the average number of companies showing signs of insolvency after COVID-19 (2020?2021) was 158. This is a 21% decrease compared to the previous three-year average of 200 companies from 2017 to 2019. This decline was largely influenced by the number of D-rated companies dropping from an average of 138 in 2017?2019 to 86 in 2020?2021, a 37.7% decrease.

The recent decrease in the number of companies showing signs of insolvency is attributed to liquidity support measures such as maturity extensions and repayment deferrals, as well as improvements in corporate performance. In fact, with the improvement in corporate cash flow due to these measures, delinquency rates have fallen to their lowest levels, and rehabilitation applications continue to decline. Moreover, since the second half of last year, with clear improvements in business conditions and export growth, corporate performance has significantly exceeded pre-COVID levels.

The Financial Supervisory Service assessed that the scale of credit extended by the financial sector to companies showing signs of insolvency is not large, and the impact on the soundness of domestic banks is minimal. As of the end of September, credit extended to these companies by the financial sector amounts to 1.3 trillion KRW. Of this, bank credit accounts for the majority at 800 billion KRW, and the additional bank provisions estimated due to the selection of companies showing signs of insolvency amount to approximately 112.4 billion KRW.

Currently, banks are operating rapid financial support programs and pre-workout systems to provide financial assistance to SMEs facing management difficulties. Regarding this, a Financial Supervisory Service official stated, "For companies showing signs of insolvency that apply for workout, we will promote business normalization through the establishment and implementation of self-rescue plans and creditor financial support, and for companies that do not apply for workout or rehabilitation procedures, creditor banks will be guided to strengthen post-management." The official added, "For normal SMEs experiencing temporary liquidity crises but not showing signs of insolvency, creditor banks will also be encouraged to actively support them through rapid financial support and pre-workout programs."

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