"Rapid Increase in Companies Earning Money but Unable to Pay Interest"

The number of domestic companies unable to cover interest expenses with operating profit has surged.

According to the "2023 Corporate Management Analysis Results" released by the Bank of Korea on the 12th, the interest coverage ratio of non-financial profit-seeking corporations subject to external audit in Korea (32,032 companies) was 219.5% last year, a sharp decline from 443.7% the previous year.

This is the lowest level since the related statistics were compiled in 2013. During the same period, the proportion of companies with an interest coverage ratio below 100%, meaning interest expenses exceeded operating profit, increased from 34.6% to 40.1%, marking a record high.

The proportion of companies with a relatively good profitability, having an interest coverage ratio above 500%, decreased from 38.9% to 31.7%, setting a new record low.

The growth and profitability of the surveyed companies also deteriorated. The sales growth rate sharply dropped from 16.9% in 2022 to -2.0% last year. This is the third lowest figure on record, following -3.2% in 2020 and -2.4% in 2015.

In manufacturing, sales decreased by 2.7%, mainly in electronics, video, communication equipment, and petroleum refining and coke. In non-manufacturing, sales decreased by 1.2%, mainly in transportation, warehousing, and wholesale and retail trade.

By company size, the sales growth rates of large companies (18.1 → -2.8%) and small and medium enterprises (12.3 → 1.4%) both declined. The annual total asset growth rate also fell from 7.8% in 2022 to 5.4% last year.

Looking at profitability indicators, last year’s operating profit margin (3.8%) and pre-tax net profit margin (4.4%) both declined compared to 5.3% and 5.1% in 2022, respectively. Among these, the operating profit margin is the lowest since 2013.

In manufacturing, the operating profit margin fell from 6.3% to 3.2%, and the pre-tax net profit margin dropped from 5.1% to 4.4%. In non-manufacturing, the operating profit margin rose from 4.1% to 4.4%, but the pre-tax net profit margin decreased from 3.7% to 3.6%.

Gang Young-gwan, head of the Corporate Statistics Team at the Bank of Korea, said, "As loan interest rates rose, the average interest rate on corporate borrowings increased and the financial cost burden ratio also rose," adding, "Sales and operating profit growth rates declined."