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Illustration depicts rising corporate distress in South Korea, with the number of at-risk firms climbing to 3,364 in 2025. Graphic by Asia Today and translated by UPI
April 5 (Asia Today) — The number of financially vulnerable companies in South Korea has surged to a record high, with many firms struggling to cover even interest payments as high borrowing costs and weak domestic demand persist.
According to data from five major commercial banks, 3,364 companies were classified as at high risk of becoming distressed in 2025 credit assessments, up 828 from a year earlier. The figure marks the highest level since records began in 2005 and exceeds levels seen during the COVID-19 pandemic.
The increase reflects prolonged high interest rates and a slow recovery in domestic consumption, which have made it difficult for many firms to repay both principal and interest on loans.
More companies are also slipping into actual distress. Firms categorized as showing clear signs of financial trouble rose to 45, while those deemed unlikely to recover climbed to 98.
The strain is evident in broader financial indicators. The Bank of Korea said 46.4% of companies had an interest coverage ratio below 1 as of the third quarter of last year, meaning nearly half were unable to generate enough operating profit to cover interest expenses.
The rise in vulnerable firms is adding pressure on banks, which are already tightening lending standards. Non-performing corporate loans at the five major banks reached about 4.2 trillion won ($3.1 billion), even as overall corporate lending growth slowed.
Banks have responded by applying stricter credit risk assessments, but the rapid increase in troubled borrowers is raising concerns about asset quality in the financial sector.
Analysts warn that risks could grow further if geopolitical tensions in the Middle East continue to push up oil prices, fueling inflation and weakening corporate profitability.
A central bank official said prolonged external shocks could erode companies’ ability to service debt, potentially undermining financial stability.
— Reported by Asia Today; translated by UPI
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Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260406010001361