221 Companies Designated as Showing Signs of Insolvency
Increase in Grade D Large Companies with Low Probability of Management Normalization
Number of SMEs Rises When Including Ad-Hoc Assessments
Real Estate, Automobile, and Wholesale Sectors Lea
This year, the number of large companies facing the risk of bankruptcy has increased compared to last year. This is interpreted as a result of more companies experiencing management difficulties due to the prolonged high interest rate environment.
On December 17, the Financial Supervisory Service announced that, based on the results of this year's regular credit risk assessment by creditor banks, 221 companies were designated as companies showing signs of insolvency. The regular credit risk assessment, conducted once a year, categorizes companies into four ratings: A to D. A indicates normal status, while B refers to companies with potential signs of insolvency. Companies with signs of insolvency, categorized as C and D, are further divided into those with a high probability (C) and a low probability (D) of management normalization. Companies rated C undergo a workout (corporate restructuring), while those rated D are subject to court receivership (rehabilitation procedures).
The total number of companies showing signs of insolvency decreased by nine from last year (230) to 221. The number of D-rated companies, which have a low likelihood of management normalization, dropped by 13 to 117. In contrast, the number of C-rated companies, with a higher chance of normalization, increased by four to 104. By company size, the number of large companies with bank credit exposure of 50 billion won or more increased by six to 17. Among these, the number of D-rated large companies rose from seven last year to 14 this year. There were no D-rated large companies in 2021 and 2022. The number of small and medium-sized enterprises (SMEs) with credit exposure of less than 50 billion won decreased by 15 to 204, and D-rated SMEs also decreased by 20. However, the number of C-rated SMEs increased by five.
For SMEs, the number of companies showing signs of insolvency increased compared to last year in the ad-hoc assessments conducted every quarter. As a result, when combining both regular and ad-hoc assessments, the number of SMEs showing signs of insolvency this year reached 437, up by 46 from last year (391). The number of D-rated companies increased by 35, and C-rated companies increased by 11.
The Financial Supervisory Service stated, "The prolonged high interest rate environment has led to a deterioration in the financial structure, particularly among some marginal companies."
By industry, the largest number of companies showing signs of insolvency were in real estate, with 39 companies. The number of automobile-related companies decreased by five to 16, ranking second. This was followed by wholesale and brokerage (15), machinery and equipment (12), rubber and plastics (11), and electronic components (10).
The total amount of bank credit extended to companies showing signs of insolvency stands at 2.2 trillion won, accounting for about 0.1% of all bank credit. While the Financial Supervisory Service expects the impact on the soundness of domestic banks to be limited, this figure is up by 0.03 percentage points from last year (0.07%). As a result of the designation of these companies, banks are required to set aside an additional 186.9 billion won in loan loss provisions. This will result in a 0.01 percentage point decline in the Bank for International Settlements (BIS) capital adequacy ratio.
The Financial Supervisory Service announced that it will encourage prompt follow-up measures (such as workouts and rehabilitation procedures) for companies showing signs of insolvency and strengthen financial support for companies experiencing temporary financial difficulties.
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