"Can't Even Cover Interest with Operating Profit"… South Korea Ranks 5th in OECD for Share of Zombie Companies

Last Year 17.9%, 16%P Higher Than Japan

[Asia Economy Reporter Dongwoo Lee] The proportion of zombie companies in South Korea was found to be the fifth highest among 24 OECD member countries surveyed.

The Federation of Korean Industries (FKI) announced on the 13th that, based on a survey of domestic companies with total assets of 50 billion KRW or more, conducted under the Act on External Audit of Stock Companies, 17.9% of companies were classified as zombie companies as of last year. This means that 18 out of every 100 companies have been unable to cover even their interest expenses with operating profits for three consecutive years.

South Korea's zombie company ratio last year (17.9%) increased by 2.5 percentage points compared to 2017 (15.4%). This figure is 5.5 percentage points higher than the OECD average (12.4%) and 16 percentage points higher than Japan (1.9%), which has the lowest proportion of zombie companies.

During the same period, the increase in the proportion of zombie companies in the United States (1.2%p), Canada (3.2%p), Spain (4.0%p), and Greece (5.1%p), all of which have higher zombie company ratios than South Korea, was found to be lower than that of South Korea.

The proportion of zombie companies in South Korea's service sector was the highest at 38.1%. This figure greatly exceeds the OECD average of 10.1% for the service industry. Among the 24 countries surveyed, only Turkey (40.0%) had a slightly higher proportion of zombie companies in the service sector than South Korea.

Following the service sector, real estate (30.4%) and transportation (24.3%) had the next highest proportions of zombie companies. The industry with the lowest proportion was food retail (4.7%).

The FKI predicted that the proportion of zombie companies in the service sector will increase significantly in the future, as the sector, including leisure, tourism, and hotels, has been severely impacted by COVID-19.

Yoo Hwan-ik, head of the FKI Corporate Policy Office, emphasized, "The increase in zombie companies can pose a significant burden on the national economy," adding, "Regulations should be eased and a business-friendly environment created so that companies on the brink can recover on their own."