17% of Companies Unable to Pay Interest for Three Consecutive Years... Another All-Time High

Proportion of Marginal Companies Rises Among Both SMEs and Large Corporations
More Firms Remain in Marginal Status, Fewer Recover to Normal
High-Risk Marginal Companies with Insolvency Potential Reach 7%

The proportion of marginal companies-those unable to cover their interest payments with their earnings for three consecutive years-has exceeded 17% for the third year in a row. Despite the overall improvement in corporate performance last year, the share of marginal companies reached an all-time high. Even among large corporations, the proportion of marginal companies increased again, and the number of "high-risk marginal companies"-those with a high probability of insolvency-surged. Experts point out that the persistence of marginal companies is driven not only by economic factors but also by structural issues, highlighting the need for industry-specific responses such as restructuring and industrial reorganization.

According to the Bank of Korea's "Financial Stability Report" released on September 25, 2025, 17.1% of domestic companies subject to external audits were classified as marginal companies at the end of last year. This figure is up 0.7 percentage points from the previous year and marks the highest level since statistics began in 2010. The proportion of marginal companies has set new records for three consecutive years since 2022 (15.5% → 16.4% → 17.1%).

A marginal company is defined as one whose interest coverage ratio-operating profit divided by interest expenses-remains below 1 for three consecutive years. These so-called "zombie companies" are characterized by a prolonged inability to service their debts.

By company size, the proportion of marginal companies was 18% among small and medium-sized enterprises (SMEs) and 13.7% among large corporations. SMEs have seen a continuous increase for four consecutive years since 2021, while large corporations saw a slight decline in 2023 before rising again. By industry, the real estate sector (39.4%) and the accommodation and food service sector (28.8%) had the highest proportions of marginal companies. Over the past year, the real estate sector (up 5 percentage points) and the information and communications sector (up 3.5 percentage points) saw the largest increases. Based on credit exposure, the expansion of marginal companies was particularly notable in the petrochemical and electronics sectors, where global oversupply issues have become prominent.

The persistence of marginal companies is also intensifying. As of the end of last year, 44.8% of marginal companies had remained in that state for more than three years, up 8.3 percentage points from a year earlier. Meanwhile, the proportion of marginal companies that returned to normal status after one year fell from 16.3% to 12.8% over the same period. This suggests that recovery becomes increasingly difficult once a company enters marginal status.

The proportion of high-risk marginal companies-those with a high risk of insolvency-also reached 7%. After peaking at 7.3% in 2021 and falling to 5.5% in 2023, the figure rose again last year. Based on credit exposure, the proportion surged from 5.8% in 2023 to 8.5% in 2024. Among high-risk marginal companies, those classified as highly leveraged (5.9%) outnumbered those suffering from poor performance (1.9%). By industry, the real estate and accommodation and food service sectors had the highest proportions of high-risk marginal companies.

In its report, the Bank of Korea stated, "Despite the overall improvement in corporate performance last year, the proportion of marginal companies has continued to increase over a prolonged period," adding, "The recent rise in marginal companies is largely attributable not only to economic factors but also to structural issues."

The report further emphasized, "While ongoing restructuring efforts are needed in sectors such as real estate, which already have a high concentration of marginal companies, it is also necessary to enhance the competitiveness of the entire industry by preparing support measures and pursuing business reorganization in vulnerable sectors where exposure to marginal companies is rapidly increasing due to changes in domestic and international conditions." The Bank of Korea stressed the need to "develop differentiated strategies for each industry sector."

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