Record 40.9% of Korean Firms Struggle to Cover Interest Payments (Image supported by ChatGPT)
SEOUL, June 12 (Korea Bizwire) — The proportion of South Korean companies unable to cover their interest expenses with operating profits reached an all-time high in 2024, underscoring persistent financial stress among smaller firms despite improved overall corporate earnings.
According to the Bank of Korea’s annual corporate management analysis released Wednesday, 40.9% of non-financial, for-profit companies subject to external audits recorded an interest coverage ratio (operating profit divided by interest expenses) below 100% last year — meaning they failed to generate enough profit to pay interest on their debt. This marks a 1.9 percentage-point increase from 2023 and the highest level since the central bank began compiling such data in 2013.
Of particular concern, 28.3% of companies posted operating losses and had interest coverage ratios below 0%, up from 27.0% the previous year — also a record high.
Despite these vulnerabilities, aggregate corporate financial health improved in 2024. The average interest coverage ratio across all companies rose from 221.1% in 2023 to 298.9%, buoyed largely by stronger performance from large enterprises.
Revenue growth rebounded to 4.2% in 2024, after contracting by 2.0% in 2023. The manufacturing sector, led by electronics and telecom equipment, saw a 5.2% increase in sales, while the non-manufacturing sector grew 3.0%, driven by logistics, retail, and warehousing services. Both large firms (from -2.8% to 4.4%) and small and mid-sized enterprises (from 1.4% to 3.2%) recorded improved sales growth.
Corporate profitability also rose. The average operating margin climbed to 5.4%, from 3.8% in 2023, and the pre-tax profit margin increased to 5.2% from 4.5%. Manufacturing firms posted significant gains, with their operating margin rising from 3.3% to 5.6%. In contrast, non-manufacturers saw more modest gains, with operating margins rising from 4.4% to 5.1%.
However, the divergence between large and small firms grew. Large companies improved both their operating and pre-tax profit margins (from 3.6% to 5.6% and from 4.8% to 5.7%, respectively), while small and mid-sized enterprises experienced declines (operating margin from 4.8% to 4.6%; pre-tax margin from 3.4% to 3.0%).
Meanwhile, corporate debt levels held steady. The average debt-to-equity ratio edged down from 102.0% to 101.9%, and dependence on borrowed capital decreased slightly from 28.7% to 28.3%.
Jung Young-ho, head of the BOK’s corporate statistics team, noted that while large firms have led the recovery, “profitability among small and medium-sized businesses has declined.” He pointed to weaker earnings in the wholesale, retail, and real estate sectors as contributing factors to the growing share of firms falling below the critical 100% interest coverage threshold.
The findings highlight a widening gap between large enterprises and the small business sector — a growing concern as policymakers seek to ensure a more balanced and resilient economic recovery heading into 2026.
M. H. Lee (mhlee@koreabizwire.com)
