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Interest Coverage Ratio of One-third of South Korean Companies Is Below 100%
Unable to Meet Interest Expenses with Operating Profits
Interest Coverage Ratio of One-third of South Korean Companies Is Below 100%
  • By Yoon Young-sil
  • June 5, 2019, 13:06
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About one third of South Korean companies had an interest coverage ratio of less than 100 percent in 2018.

The Bank of Korea announced on June 4 that 32.3 percent of South Korean companies, an all-time high since records began in 2013, had an interest coverage ratio of less than 100 percent in 2018. The interest coverage ratio of all companies was 588.4 percent, down 57.1 percentage points from a year earlier.

In short, their business environments deteriorated to a significant extent last year. For example, the sales growth rate of all industries fell from 9.9 percent to 4.2 percent in 2018 while those of large corporations and smaller companies fell from 9.5 percent to 4.3 percent and from 11.3 percent to 3.9 percent, respectively.

The sales growth rate of the manufacturing sector more than halved from 9.8 percent to 4.5 percent. Likewise, that of non-manufacturing dropped from 9.9 percent to 3.8 percent. “Export growth slowed down in semiconductor, wireless communications equipment, display, and so on, causing the sale growth in the electronics, audio & video, and telecommunications equipment sector to plummet from 19.9 percent to 3.1 percent,” the central bank explained.
 

The operating margin of South Korean companies fell from 7.3 percent to 6.9 percent as a result of the decline in sales. Meanwhile, their debt ratio reached a record low of 91.5 percent, down 4.2 percentage points from a year ago. This is mainly because they refrained from expanding their facilities amid the ongoing economic recession.