It was found that so-called 'zombie corporations,' which cannot even pay off interest with the money they earn, accounted for 40.9% of all corporations last year, the highest level since statistics were first compiled. The proportion of corporations recording an operating loss also exceeded 28%, setting a record high.
According to the Bank of Korea's report on '2024 corporate management analysis (flash)' released on the 11th, the median interest coverage ratio for 34,167 non-financial profit corporations subject to external audit in Korea last year (83% small corporations, 17% large corporations) was counted at 150.2%, the lowest figure since the statistics began to be compiled in 2013.
The interest coverage ratio is one of the indicators showing the profitability of corporations. It is the value obtained by dividing operating profit by financial costs (interest costs), indicating the corporations’ ability for debt repayment. If the interest coverage ratio is less than 100%, it means that there is no money left after paying interest with operating profit, and if it is less than 0%, it means that an operating loss was incurred.
The decrease in the interest coverage ratio indicates that the number of unprofitable corporations that cannot pay interest has significantly increased. Among the corporations surveyed last year, the proportion of those with an interest coverage ratio below 100% was 40.9%, hitting the highest level since the statistics were compiled. The proportion of corporations with an operating loss and an interest coverage ratio below 0% was 28.3%, which is also a record high.
However, the overall average interest coverage ratio improved as some large corporations' operating profits surged. Last year, the average interest coverage ratio was 298.8%, an increase of 77.7 percentage points from the previous year (221.1%). The average interest coverage ratio is calculated by summing the interest costs and operating profits of all corporations, and unlike the 'median interest coverage ratio,' which takes the middle value of individual corporations' interest coverage ratios, it is significantly affected by some extreme values.
Jeong Young-ho, Head of Team at the Bank of Korea, noted that while the average interest coverage ratio increased due to improvements in indicators, mainly in the manufacturing sector where large corporations are concentrated, operating profits in non-manufacturing sectors with many small corporations decreased. He said the deteriorating conditions for small corporations led to an increase in the number of corporations with an interest coverage ratio below 100% and those with operating losses.
The indicators showing the overall growth and profitability of corporations also improved as some corporations' performances improved. Last year, the average revenue growth rate for externally audited corporations recorded 4.2%, an improvement from the previous year’s -2.0%. The total asset growth rate was also higher than the previous year (5.4%) at 6.5%. The operating profit margin, an indicator of profitability, rose from 3.8% to 5.4%, while the pre-tax net profit margin increased from 4.5% to 5.2%. The operating profit margin is calculated by dividing the operating profit by the revenue.
Indicators reflecting financial stability also improved. Last year, the average liability ratio of corporations was 101.9%, a slight decrease from the previous year's 102.0%. The reliance on borrowing funds also fell from 28.7% to 28.3%. Although the liability ratios of the manufacturing sector and large corporations rose slightly, the overall figure decreased as those of non-manufacturing sectors and small corporations fell.
Jeong explained that the performances of electronics, video, communication, and equipment corporations that include semiconductors worsened in 2023 but improved last year, noting that their significant share contributed to the overall improvement in growth and profitability indicators for corporations.