37% of firms fail to repay interest on debts in 2019: BOK

About 37 percent of firms in South Korea failed to repay the interest on their debts in 2019, central bank data showed Wednesday, highlighting concerns about deteriorating corporate financial status amid economic gloom.

The number of so-called marginal or zombie firms is expected to rise further this year as the coronavirus pandemic devastated the nation's economy.

According to the Bank of Korea (BOK), 36.6 percent of 384,877 firms made less profit than their interest expenses for a third consecutive year in 2019, compared with 35.2 percent in 2018.

It marked the highest number since 2009, when the BOK began compiling the data.

Those with an interest coverage ratio of less than 1 for three consecutive years are often referred to as marginal or zombie firms.

The interest coverage ratio is obtained by dividing a company's operating profit by its interest expenses. A reading below 1 means the company's operating profit cannot cover its interest expenses.

Before the pandemic, South Korea's economy had already been saddled with falling exports, hit by a trade war between the United States and China.

The average sales of 741,408 nonfinancial firms edged up 0.4 percent on year in 2019, compared with growth of 4 percent in 2018, the BOK said.

The average ratio of operating profit to sales also fell to 4.2 percent in 2019, compared with 5.6 percent in 2018.

Last month, the BOK predicted that the number of marginal firms is likely to jump this year, due to the economic fallout from the pandemic. (Yonhap)