Interest-Unable Limit Companies Surge in 5 Years... 'Accounting for 1/4 of Listed SMEs'

Increasing Number of Companies Enduring Through Maturity Extensions and Repayment Deferrals
Democratic Party Lawmaker Lee Jung-moon Calls for Reconsideration of the 'Corporate Restructuring Promotion Act'

[Asia Economy Reporter Naju-seok] The number of "zombie companies"?firms unable to cover financial costs such as loan interest with profits from their business activities?has surged over the past five years.

On the 19th, according to data analyzed by Lee Jung-moon, a member of the Democratic Party of Korea, submitted by the Financial Supervisory Service, the ratio of zombie companies among listed firms was 14.8% last year, an increase of 2.2% compared to 2017. As of last year, 7.4% of large corporations and 25.3% of small and medium-sized enterprises were classified as zombie companies.

Lee stated, "Compared to normal listed companies, zombie companies have significantly worsened management indicators such as debt ratio, dependence on borrowings, and operating profit margin over the past five years. If they continue to survive through maturity extensions and repayment deferrals without restructuring, they risk becoming zombie companies that dampen market vitality."

It was found that zombie companies have been supported primarily by policy banks. Over the past five years, credit provision (loans and guarantees) to zombie companies amounted to 48.8 trillion won (11.3 trillion won from the five major commercial banks and 37.5 trillion won from policy banks). The ratio of credit provision to zombie companies compared to total credit provision was 5.6% for commercial banks, whereas policy banks provided about three times more at 14.4%.

He pointed out, "The abnormal survival of companies needing restructuring not only leads to inefficient capital allocation and hinders technology diffusion but also results in decreased productivity. Policy banks' unnecessary credit provision to zombie companies prolongs their existence and acts as an obstacle to corporate restructuring."

Lee added, "To increase corporate productivity, it is important to guarantee the natural entry and exit of companies and effectively promote restructuring. With about one year left before the sunset of the 'Corporate Restructuring Promotion Act,' which was reintroduced for five years, the financial authorities should proactively consider a comprehensive operational system for corporate restructuring and actively discuss it with the National Assembly."

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