1 out of 10 S. Korean companies becomes chronic "zombie": report

One out of 10 South Korean companies became a chronic "zombie" firm as they were not able to repay even borrowing costs with earnings, a central bank report showed Tuesday.

The number of chronic zombie firms reached 2,561 in 2014, accounting for 10.6 percent of the total, according to a Bank of Korea analysis of firms subject to external audit.

The central bank said in its semiannual financial stability report that the 2014 figure was up from 1,851 companies, or 8.2 percent of the total, tallied in 2009.

The zombie firm refers to a marginal company incapable of repaying even interest with operating profits for three straight years, indicating the ratio of operating profit to interest costs hovering below 100 percent.

The chronic zombie firm means a company belonging to the zombie group more than twice in the past 10 years.

The chronic zombie ratio for large corporations gained from 6.6 percent in 2009 to 10.8 percent in 2014, and the figure for small firms increased from 8.5 percent to 10.6 percent.

The rising pace of chronic zombie firms was fast in construction, transport, shipbuilding and steel industries.

The maintenance of the low-profitable companies was attributed to public funds offered by state-run lenders such as the Korea Development Bank and the Export-Import Bank of Korea.

Credit line, provided by state-run lenders and public financial institutions, totaled 43.7 trillion won (37.2 billion U.S. dollars) as of end-June, up from 22.8 trillion won in 2011.

In case of external shocks on the zombie firms, the ramifications would spread to financial institutions and cause instability in the overall financial system. Enditem