Korea's Corporate Debt 3rd Highest in the World

Korea's corporate debt has surpassed 126 percent of the country's GDP to reach a new record.

At the end of September last year, the only other countries whose corporate debt surpassed their GDP were Hong Kong (267.9 percent), China (166.9 percent), Singapore (125 percent), Japan (115.2 percent) and Vietnam (107 percent).

According to the Institute of International Finance, the average ratio of corporate debt to GDP of 34 member states except the EU was 66.7 percent at the end of the third quarter this year.

Korea ranked third with 126.1 percent after Hong Kong and China. Korea's corporate debt jumped 5.7 percentage points on-year, which was also the third-fastest in the world after Russia (13.4 percentage points) and China (8.6 percentage points).

Worldwide the ratio decreased 1.9 percentage points on average over the past year as most countries trimmed down debt by raising interest rates to tame inflation. But Korean companies' debts rose further and surpassed even levels seen during the 1998 Asian financial crisis (108.6 percent).

When companies borrow money to fuel new businesses they can contribute momentum to economic growth, but shouldering excessive debt increases the risk of defaults and bankruptcies.

According to the Bank of Korea, a whopping 42.3 percent of businesses here were unable to even cover the interest on their loans last year, the highest proportion ever.

Korea's total corporate debt including borrowings by mid-sized companies and private business owners surpassed W1.5 quadrillion at the end of June (US$1=W1,297). There are increasing signs that small and mid-sized businesses that managed to survive the coronavirus pandemic with emergency government aid have begun to fall into arrears and edge dangerously close to bankruptcy.

According to the Financial Supervisory Service, the debt delinquency rate of small and mid-sized companies is 0.59 percent, up 0.21 percentage point compared to a year ago, while the rate among private business owners is 0.5 percent, up 0.3 percentage points. That is higher than the household debt delinquency rate of 0.38 percent.

This meant that 1,213 businesses declared bankruptcy in the first nine months of this year, up 64 percent on-year and even more than the previous record of 1,069 in 2021. Applications for corporate rehabilitation also surged 63.6 percent on-year to 1,160, according to the Supreme Court.

Korea saw the second steepest increase of corporate bankruptcies among 17 major countries after the Netherlands.