Number Of ‘Zombie Companies’ Unable To Generate Revenue To Settle Tax And Interest Payments Exceed 3,000 Over The Past Five Years, According To Bank Of Korea
Data released by Bank of Korea (BOK) on Wednesday shows the growing number of "zombie companies" unable to generate sufficient revenue to pay tax and interest dues has exceeded 3,000 over the past five years, Korea Herald reported on the same day.
According to BOK, the number of companies which has the ratio of operating revenue to interest costs lower than 1 raise to 3,295 last year, which is higher than 2,698 in 2009.
"Zombie companies" skyrocketed to 15.2 percent in 2014 as compared to 12.8 percent five years ago.
Meanwhile, a separate study conducted by LG Economic Research Institute shows that 34.9 percent of the 628 listed companies have failed to generate enough profit to pay down the principal on their liabilities, as noted by The Indian Subcontinent on Oct. 5.
The latest figures are evidently higher than the 24.7 percent in 2010.
"As the economy still remains repressed, more companies failed to return their debt," LG Institute researcher Lee Han Deuk says.
Reports revealed that the increasing number of "zombie companies" or firms unable to produce sufficient profits to settle tax and interest dues has been considered a factor that is troubling the economy of South Korea.
On the other hand, the Asia's fourth-largest economy plans to build a state-backed restructuring company in response to the problem brought about by the increasing "zombie companies" in the country.
Reuters forecasted on Sep. 15 that the plan will be supported by the government and banks in South Korea. In addition, the South Korean government revealed that the Korea Development Bank (KDB) also plans to sell several non-financial companies it manages.
Further reports have revealed that about 20 out of 118 non-financial companies controlled by KDB are viewed as struggling.
Financial Services Commission chairman Yim Jong Yong says "it's time to respond preemptively."
"We need to help usher in a virtuous circle by making money flow into productive areas and away from non-productive sectors by removing these festering sores," Yim says.