160 Companies Showing Signs of Distress Up by 3 from Last Year... "Decrease in Large Enterprises, Increase in Medium-Sized Companies"

[Asia Economy Reporter Park Jihwan] The number of companies showing signs of insolvency entering restructuring processes such as workouts or rehabilitation procedures this year has slightly increased compared to last year.

The Financial Supervisory Service (FSS) announced on the 16th that, based on the 2021 regular credit risk assessment conducted by creditor banks, 160 companies were identified as signs-of-insolvency companies out of 3,373 surveyed companies (639 large enterprises and 2,734 small and medium enterprises). This is an increase of 3 companies compared to 157 last year.

The regular credit risk assessment is conducted by creditor banks under the Corporate Restructuring Promotion Act (Gichokbeop), targeting large enterprises with financial credit exposure of 50 billion KRW or more and small and medium enterprises with less than 50 billion KRW. Once a year, financial and operational risks are evaluated to select companies showing signs of insolvency. According to the evaluation grades (A, B, C, D), companies rated C undergo workouts by creditor groups, while those rated D proceed through self-rehabilitation procedures such as court receivership.

This year, companies rated C and D and selected as signs-of-insolvency companies include 3 large enterprises and 157 small and medium enterprises. Compared to last year, the number of large enterprises decreased by one, while small and medium enterprises increased by four. All three large enterprises were rated C. Among small and medium enterprises, 76 were classified as workout targets (C grade), an increase of 12 from the previous year. Meanwhile, the number of companies rated D, subject to exit procedures such as court receivership, was 81, down by 8 from last year. By industry, the order was metal processing (21 companies), machinery equipment (17 companies), and automobile parts (16 companies). All these sectors showed a slight increase compared to the previous year.

The average number of signs-of-insolvency companies during the COVID-19 period last year and this year was 158, which is a 21% decrease compared to the previous three-year average of 200. The FSS explained that this was due to liquidity support measures such as maturity extensions and repayment deferrals, as well as improvements in corporate performance. Additionally, 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 total credit exposure by the financial sector to the 160 signs-of-insolvency companies stood at 1.3 trillion KRW as of the end of September. Banks accounted for most of this, with 800 billion KRW. The additional provisions banks need to set aside for these companies amount to approximately 112.4 billion KRW. According to the FSS, the impact on the BIS ratio due to additional loan loss provisions is minimal. An FSS official evaluated that "the scale of credit exposure to signs-of-insolvency companies is not large, and the impact on the soundness of domestic banks is minimal."

The FSS plans to promote business normalization through self-rescue plan establishment and implementation and creditor group financial support for companies applying for workouts among the signs-of-insolvency companies. For companies that do not apply for workouts or rehabilitation procedures, the FSS will guide creditor banks to strengthen post-management. Furthermore, for normal small and medium enterprises experiencing temporary liquidity crises but not classified as signs-of-insolvency companies, creditor banks will be encouraged to actively support them through rapid financial support or pre-workout programs.

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