The Bank of Korea predicted that marginal companies, which means companies that cannot earn enough profits to earn interest this year, account for more than 20% of all external audit companies.
Marginal companies refer to companies that have less than 1 interest compensation ratio (operating income/interest expense) for 3 consecutive years, that is, companies that cannot pay interest through operating income.
After the financial stability meeting of the Financial Monetary Commission was completed today (24th), the BOK released financial stability data including these details.
The BOK predicts that the number of marginal companies will increase more than last year, considering that corporate financial soundness continues to deteriorate due to the Corona 19 shock this year.
In particular, considering the sales impact (average 10.5% decrease) from Corona 19, the BOK expects that the proportion of marginal companies will expand to 21.4% this year.
Last year, there were 3,475 marginal companies (14.8% of the total), the largest since 2000 when related statistics were written.
In the same vein, marginal corporate loans are expected to rise to 22.9% (17.5 trillion won) of all external audited corporate loans.
This is an increase of 52% (60 trillion won) from last year's marginal corporate loans (11.5 trillion won, 15.0% of the total).
The BOK emphasized that "marginal companies and their loans will increase rapidly due to the impact of Corona 19," and emphasized that "Financial institutions should strengthen corporate credit risk management and prepare for losses such as provisioning."
According to the BOK, the expected default probability of marginal companies rose slightly from 3.1% in December 2018 to 3.2% in December last year, and then rose to 4.1% in June.
4.1% is 2.5 times that of non-limiting companies (1.7%).
(Photo = Courtesy of the Bank of Korea, Yonhap News)