The non-performing assets (NPAs) of Korean financial companies are reported to have increased dramatically since the global financial crisis. Experts raised concerns about the possibility that a steep increase in large firms at risk of insolvency would generate anxiety in the financial market.
According to a report on the growing trend of companies at risk of bankruptcy released by LG Economic Research Institute on December 3, the size of Korean financial firms’ NPAs is estimated at 39.8 trillion won (US$37.5 billion) as of September this year. The number is the highest since 2000, after reaching 56.4 trillion won (US$53.1 billion) in the late 2000s.
NPAs are loan portfolios that are classified as substandard loans. Domestic financial companies’ NPAs ballooned to 38.7 trillion won (US$36.5 billion) at the end of 2011 from 16.8 trillion won (US$15.8 billion) in late 2007, because of a continuing upward trend since 2008. The figure for 2012 was 33 trillion won (US$31.1 billion), but the number increased by 6.8 trillion (US$6.4 billion) from January to September this year.
Large companies in danger of going bankrupt grew from 64.2% of the total in 2005 to 81.1% in the first half of 2013. Their debt comprises 93.2% in 2005, but jumped to 99.1% this year.
Industry analysts are saying that the growing percentage of debt held by firms at risk of failing is attributable to a rise in debt owned by large companies, even though there is not much difference in the total number of firms at risk. Debt owed by those unsound companies rose from 13.3% in 2005 to 34% this year.