South Korea’s Marginal Businesses to Top 20% of Total in 2020
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SEOUL, Sep 24 (Xinhua/APP): South Korea’s marginal businesses, which are incapable of repaying interest with earnings, are forecast to top 20 percent of the total this year, the country’s central bank said Thursday.
The Bank of Korea (BOK) said in a financial stability report that the ratio of marginal businesses to total companies subject to external audit is expected to reach 21.4 percent in 2020. It was sharply up from 14.8 percent in 2019 and 14.2 percent in 2018 respectively. The number of marginal businesses is forecast to surge to 5,033 in 2020 from 3,475 in 2019 and 3,236 in 2018 each.
The marginal business refers to companies that have been unable to pay back interest with operating profit for the third consecutive year. The bleak outlook came amid expectations that the COVID19 pandemic would roil the South Korean economy. The country’s real gross domestic product (GDP), adjusted for inflation, contracted 3.2 percent in the second quarter from the previous quarter, after sliding 1.3 percent in the first quarter. Adding to the concerns, COVID19 resurged here due to cluster infections in the Seoul metropolitan area linked to church services and a massive rally held in central Seoul on Aug. 15.
The BOK revised down its growth outlook in late August, forecasting that the real GDP would diminish 1.3 percent in 2020. In May, the bank had expected the real GDP to shrink 0.2 percent this year. The central bank cut its target rate by 25 basis points to an all-time low of 0.50 percent in May, after slashing it by 50 basis points in March.
Amid the economic slump, households and companies increased debt from lenders. The ratio of credit in the private sector, including households and companies, to the nominal GDP came in at 206.2 percent as of the end of June, up 5.2 percentage points from three months earlier. It marked the highest since data began to be compiled in 1975.
Household debts amounted to 1,637.3 trillion won (1.39 trillion US Dollars) as of end-June, up 5.2 percent from a year earlier. Households’ disposable income inched up 0.7 percent as of end-June compared to a year earlier. The slower growth in income than debt for households resulted in the ratio of debt to disposable income at 166.5 percent as of end-June. It was the highest since relevant data began to be compiled in the fourth quarter of 2022.
Corporate debt reached 2,079.5 trillion won (1.77 trillion US Dollars) at the end of June, up 9.6 percent from a year ago. It posted the fastest increase since the third quarter of 2009 when the global financial crisis hit the economy. The BOK forecast that credit loan from banks would continue to rise for the rest of this year amid strong demand from households and small companies, especially microbusiness owners.
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