Record Number of Businesses Unable to Service Debt

  • By Kim Shin-young

    June 04, 2021 12:26

    A record number of companies are unable to cover even the interest on their loans due to the coronavirus pandemic.

    The Bank of Korea analyzed the earnings of 25,871 businesses last year and found that 34.5 percent could not fully meet their monthly interest payments, up around four percentage points on-year.

    The interest coverage ratio is calculated by dividing operating profit by loan interest, and a reading below 100 means companies do not make enough money to cover interest payments.

    Kim Dae-jin at the BOK said, "The number of companies with low interest coverage ratios increased as many transportation and petrochemical companies suffered losses due to the coronavirus pandemic and declining oil prices."

    But some businesses' sales rose in the pandemic, and so did their ability to service their debt. In the semiconductor and household-appliance sectors, the proportion of companies whose interest coverage ratio surpassed 500 percent rose from 40.9 percent in 2019 to 41.1 percent last year.

    The average interest coverage ratio of all businesses rose from 367.6 percent to 391.5 percent.

    Corporate profits declined 3.2 percent last year, the biggest decline on record and the first consecutive decline for two years. Manufacturers' sales fell 3.6 percent and non-manufacturers' 2.6 percent. Large companies' sales dropped 4.3 percent, while small and mid-sized companies' sales edged up 0.8 percent.

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